British Virgin Islands: BVI Limited Partnership Act 2017

Last Updated: 13 February 2018
Article by Michael Killourhy

The eagerly awaited British Virgin Islands (BVI) Partnership Act, 2017 (the Limited Partnership Act or the Act) which was enacted in December 2017 has now been officially gazetted and brought into force. The new Act now applies to all newly formed BVI limited partnerships.

Michael Killourhy of Ogier first reported on the new Act in December 2017 and his original note has now been updated to reflect the commencement of the new legislation.

The Limited Partnership Act represents a major addition to the commercial laws of the BVI and replaces the limited partnership provisions found at Part VI of the Partnership Act, 1996 (the 1996 Partnership Act) for new BVI limited partnerships and those existing ones that choose to re-register under the new Act.

Limited partnerships have become one of the most commonly used legal structures globally for investment fund vehicles. Limited partnerships, wherever formed, typically offer certain common features, including greater constitutional and capital flexibility, tax transparency and limited liability protection to investors, which make them a popular choice for investment funds. However, while the basic qualities of limited partnerships are attractive, because limited partnership legislation in many countries predates, in one way or another, the growth of the modern funds industry[1], that legislation often contains provisions or concepts incompatible with modern funds practice, and this then needs to be addressed by careful and extensive drafting in partnership agreements and fund documents – adding cost, time and, potentially, uncertainty.

While BVI limited partnerships have existed for some time, the provisions of the 1996 Partnership Act relating to limited partnerships were not, until now, updated or materially amended since its enactment. During the same time however, investment fund activity (and private equity and venture capital activity in particular) has grown significantly and, consequently, so has the appetite for limited partnership structures. While the 1996 Partnership Act provided a solid legislative platform for BVI limited partnerships in fund structures, like limited partnership legislation in many other jurisdictions, it was not conceived with those structures in mind – with the results as already described.

However, the BVI is a jurisdiction committed to ensuring that its business legislation is both modern and purposive, reflecting the actual commercial landscape in which entities operate. The new Limited Partnership Act is intended as decisively modern and purposive. On the one hand, the new legislation updates the existing approach to limited partnerships by adapting existing basic statutory positions to better meet actual market practice and norms; while, on the other, the Act brings new and innovative features (such as the ability to choose legal personality and register security interests) aimed at making BVI limited partnerships a first choice for modern investment structures.

Highlights of the new Limited Partnership Act include:-

  • The ability to choose whether a limited partnership is formed with or without legal personality.
  • The ability to publicly register a charge against a limited partnership with legal personality and obtain priority under BVI law over subsequent charges as result. This ability and the certainty on priority that it brings as a result is a feature unique to BVI law.
  • The full application to limited partnerships of key statutory reorganisation and reconstruction concepts and methods once confined to companies, including the ability to: merge or consolidate limited partnerships; migrate existing limited partnerships to and from the BVI;  compulsorily redeem minority interests; and enter into schemes and plans of arrangement, in each case in a fashion analogous to that applicable to BVI companies under the BVI Business Companies Act, 2004 (the BVI Business Companies Act). This is another feature of the new Act which is unique to BVI law, making available to managers a whole new array of tools for the reorganisation and reconstruction of structures.
  • An extensive safe harbor list of activities that limited partners may engage in without risking their limited liability (including involvement in the management of service providers to the limited partnership or investments held by it).
  • New statutory arrangements for capital calls and commitments, which both facilitate an investor's ability to finance capital calls and also grant general partners and management a broad flexibility for dealing with limited partners who default on calls.
  • Provisions allowing for general partner fiduciary and conflicts rules to be relaxed by agreement. These are specifically aimed at situations where the a single general partner acts in relation to multiple limited partnerships and thus will enhance the ability of managers to manage a range of structures through a single general partner.
  • General partners and limited partner investors are given much greater flexibility to define their roles, liabilities and limitations in respect of the limited partnership and its activities.
  • The basic statutory positions on certain key organisational and constitutional aspects of limited partnerships, including the admission of new partners, the transfer of partnership interests, information rights and returns of partnership capital and contributions are made more closely aligned with standard market custom for investment vehicles (and therefore the need dis-apply or make significant modifications by way of the limited partnership agreement will be reduced).
  • The new Act adds further clarity on winding-up and insolvency procedures for limited partnerships.

In addition, the overall approach, layout and language of the new Act is consciously modelled on the popular and highly successful BVI Business Companies Act. The BVI Business Companies Act is admired for its clear and pragmatic approach, and using aspects of its construction as a model for the Limited Partnership Act, underscores the new Act as modern and innovative, yet equally user friendly and familiar.

While the limited partnership provisions of the 1996 Partnership Act continue to apply to limited partnerships which were formed prior to the commencement of the new Act and which do not elect to become re-registered under the new Limited Partnership Act, those provisions are now repealed for all other purposes and it will no longer be possible to register a new limited partnership under the 1996 Partnership Act. Existing limited partnerships may voluntary re-register under the new Act, or, after a period of ten years, all limited partnerships remaining under the Partnership Act will be automatically reregistered under the Limited Partnership Act.

More detailed summaries of some of the key provisions of the Limited Partnership Act are set out below.

Ogier, along other major law firms and professional groups in the BVI, was closely involved in the initial formulation and consultation stages of the new Act.

Key Provisions of the Limited Partnership Act, 2017

Legal Personality

The Limited Partnership Act offers those forming a limited partnership a choice between forming a limited partnership with legal personality or one without.

Under section 5(1) of the new Act a limited partnership has legal personality, unless its general partner elects for it to be registered without legal personality. A limited partnership having "legal personality" however is not synonymous with it being a "body corporate", and in fact the Act expressly confirms that a "limited partnership that has legal personality is not a body corporate."

Having legal personality is therefore short of being a body corporate, but nevertheless more than a mere contractual or equitable relationship (as would be the case for a legal partnership without legal personality). What legal personality means in the context of the Act is defined by the Act itself which sets out certain specific legal personality rights including the following:

  • the capacity to carry on or undertake any business or activity or do any act or enter into any transaction (section 5(3)(a));
  • the right to institute legal proceedings in the name of the limited partnership (section 49); and
  • the ability to create a charge over the assets of the partnership (section 57), and for that charge to be registered against the limited partnership and for such registration to provide priority under BVI law (section 63).

Formation

A limited partnership is formed under the Act by filing with the Registrar of Limited Partnerships[2] (the Registrar) an application comprising:

  • a statement signed by or on behalf of each general partner setting out certain prescribed particulars of the limited partnership as set out at section 8(2) of the Act[3];
  • if the general partners of the limited partnership elect that the limited partnership shall not have legal personality, a declaration to that effect; and
  • a document signed by the proposed registered agent signifying its consent to act as such.

If the Registrar is satisfied that the application is compliant with the Act, and the registration fee has been paid, the Registrar will issue a certificate of registration, which shall state whether or not the limited partnership has legal personality (section 10(1)(d)). The limited partnership is formed on the date specified in the certificate (section 10(2)(b)).

Sections 18 and 19 require a limited partnership formed under the new Act to have a registered agent and registered office in a manner similar to a BVI business company.

Limited Partnership Agreement and Statutory Model Agreement

A limited partnership formed under the new Act must have a limited partnership agreement (section 7(1)). However, the Act also provides for a statutory form of model agreement (the Model Agreement), to be introduced by separate regulations, which will be deemed as adopted at formation except to the extent excluded, modified or later superseded by a signed limited partnership agreement negotiated between the relevant parties (section 7(2)). The form of the Model Agreement is set out in the Limited Partnership Regulations to accompany the Act.

The deemed acceptance of the Model Agreement allows limited partnerships to be formed quickly, without parties having to wait until the negotiated written limited partnership agreement has been finalised, but the Act of course still preserves the ability of the parties to adopt such an agreement in place of the Model Agreement or otherwise vary its terms should they wish.

Partners and Management

The general partner of a limited partnership formed under the Act is responsible for the management of the limited partnership (section 29(2)). The general partner may, but is not required, to make a contribution to the capital of the limited partnership (section 27(1)). However, the general partner is nevertheless liable for all of the unpaid debts and liabilities of the partnership incurred while general partner – to the extent that the limited partnership itself cannot pay those debts and liabilities (section 28).

A limited partnership may have multiple general partners with joint liability and coextensive power and authority, however the limited partnership agreement may also provide that the powers of certain general partners are limited or that a particular power or authority may only be exercised by a particular general partner (section 29(4)).

The general partner has prescribed statutory duties to act in good faith and in the interests of the limited partnership (section 30(a)). However, while the duty to act in good faith is absolute, the Act allows the duty to "act in the interests of the limited partnership" to be qualified by express provisions in the limited partnership agreement (section 30(b)). Part of the rationale for allowing the best interests duty to be qualified by the limited partnership agreement is so as to allow a general partner to set up other limited partnerships without the requirement to act always in the interests of the first limited partnership.

Limited partners are prohibited from taking part in the management of the limited partnership or transacting business on its behalf (section 32(2)), and, provided they do no breach that prohibition, are not liable for the debts and liabilities of the limited partnership beyond the amount of their contribution or unpaid commitment (section 33). A limited partner's limitation of liability can be lost to the extent that the limited partner is seen as participating in the management of the limited partnership in breach of the general restriction and in such circumstances the limited partners acting in breach are liable to the same extent as the general partner (subject to certain qualifications).

However, what constitutes "participating in the management of the limited partnership" for the purposes of the Act is made subject to a safe harbour provision which sets out an extensive list of activities that are not be considered as taking part in the management of the limited partnership (section 35(2)). The list of excluded activities is extensive, non-exhaustive and was compiled to reflect actual market practice and concerns but without affecting the integrity of the limited partnership model. The list of "safe harbour" activities at section 35(2) includes, for example, holding any office or interest or being employed by the general partner, acting as surety or guarantor, appointing representatives to sit on any management committee of the limited partnership and acting as a director or otherwise in the management of an entity in which the limited partnership is invested or which provides services to the limited partnership. The list may be expanded by official prescription.

Capital Calls, Commitments and Forfeiture

The new Act facilitates an investor's ability to borrow to finance capital calls by clearly allowing (subject to the terms of the limited partnership agreement) a partner to charge its partnership interest or other rights under the limited partnership agreement as security for such borrowing (sections 44 and 45). Partnerships themselves may also assign the right to a partner's uncalled capital to a third party (section 48).

The new Act at section 40 grants general partners and management a broad flexibility for dealing with limited partners who default on calls, running from the ability to simply refrain from exercising any sanction or penalty without risk of being held in breach of duty to being able to forfeit partnership interests without risk of forfeiture being held unenforceable on grounds of being penal in nature.

Admission of new partners, transfer of interests and return of contributions 

For a limited partnership operating as an investment fund being able to admit new investors as limited partners and foster liquidity through the transfer of interests and the return contributions on withdrawal are critical aspects of the basic operating mechanics of the fund. Most limited partnership legislation however, for reasons noted, does not adequately deal with this and usually imposes a basic position which tightly restricts admissions, transfers and returns – but then allows this to be relaxed by consent or under the terms of the limited partnership agreement. For the BVI however the Limited Partnership Act reverses this approach by making the commercial norm the default position (but with the ability to impose tighter restriction by statute).

Under the new Act:

  • subject to the limited partnership agreement, the consent of the other limited partners is not required for the admission of a new limited partner (section 26(2);
  • partnership interests are expressly stated as being transferable subject only to the consent of the general partner, which restriction itself may be removed by the limited partnership agreement (section 42(1));
  • it is made clear that a transferee limited partner is admitted in place of and to the exclusion of the transferor limited partner, subject to the limited partnership agreement (section 43(2);
  • the general partner is required to maintain a register of general partners and a register of limited partners (section 53), entries in which are conclusive as to status and ownership; and
  • subject to the limited partnership agreement, the consent of the other limited partners is not required for any return of partnership contributions or the release of any commitment to contribute, provided that contributions may only be returned and commitments released, when the LP is solvent.

Registration of Charges and other security interests

Although certain informal methods had been developed by practitioners, previously there was no prescribed method or statutory footing for registering and securing the prioiry of charges and other security over the assets of a limited partnership – leading to uncertainty for creditors. The Limited Partnership Act changes this.

Under the new Act a limited partnership is required to keep a register of relevant charges (section 58). Charges against a limited partnership may also be registered on the public register (section 59), and section 63 of the Act provides that a registered charge has priority over a subsequently registered charge or an unregistered charge, where the limited partnership has legal personality.

The introduction of a register of charges and the statutory scheme of priority is a significant development and, so far, unique to BVI in that other jurisdictions do not provide for priority of charges filed against a limited partnership.

Continuations, Mergers, Compulsory Redemption of Minorities and Schemes

Although the 1996 Partnership Act did allow for limited partnerships to be continued in to and out of the BVI, the actual procedure for this wasn't clearly set out in the statute. The new Limited Partnership Act rectifies this and goes much further by taking those other key statutory reorganisation and reconstruction concepts found in the BVI Business Companies Act and making them applicable to limited partnerships. The application of these concepts to limited partnerships is clearly stated in the Act, with the process for each being based on the analogous procedure under the BVI Business Companies Act but adapted specifically for limited partnerships. The corporate concepts carried across to limited partnerships include the following:

  • the ability of a foreign limited partnership to continue into the BVI (section 66);
  • the ability of a BVI limited partnership to continue to another jurisdiction (section 70);
  • the ability of a limited partnership to merge or consolidate with another limited partnership, including a foreign limited partnership where the foreign law permits mergers and consolidations of limited partnerships (section 77);
  • the ability to compulsorily redeem minority partnership interests (subject to the limited partnership agreement) (section 79); and
  • ability of a limited partnership to enter into a plan of arrangement or a scheme of arrangement (sections 82 and 85).

Limited partners are also afforded dissent rights in respect of a merger, consolidation or mandatory redemption similar to those under the BVI Business Companies Act in respect of the same procedures (section 80).

Winding-up, liquidation and strike off

The Act includes detailed provisions for the termination, deregistration and winding-up of a solvent limited partnership, and in this regard, a clear distinction is made between each such concept. Specifically:

  • a limited partnership is first "terminated" by its partners (section 86);
  • if it has no assets or liabilities it may apply to be "deregistered" (section 88(1)(a));
  •  otherwise and if solvent its affairs are "wound-up" by the general partner or a liquidator (section 88(1)(b)), and thereafter, the limited partnership may deregister (section 95(7)) by way of application for strike off (section 95(1)(d)).

The ability to simply deregister an empty, defunct partnership, without having to undertake any form of liquidation procedure is welcome.

The Act also makes provision for the applicable procedure for the winding-up of an insolvent limited partnership under the BVI Insolvency, 2003 (section 94), such procedure being essentially the same that would apply to an unlimited company.

There is also the ability of the Registrar to strike off a limited partnership (for example, for non-payment of fees). To the extent a limited partnership has been struck-off for a continuous period of seven years, it is deregistered with effect from the last day of that seven year period). However, the court may restore a deregistered limited partnership within seven years.

1996 Act limited partnerships and transitional arrangements

Limited partnerships formed under the 1996 Partnership Act will continue to be governed by the former provisions of that statute until they voluntarily re-register under the new Limited Partnership Act. However, after a period of ten years, all remaining 1996 Act limited partnerships will be automatically reregistered under the new Act. An automatically re-registered limited partnership will then have an additional two years to adopt a limited partnership agreement compliant with the new Act.

Footnotes

[1] England for example still uses the Limited Partnership Act 1907, with relatively few amendments since its first enactment, and until very recently that same act formed the basis of limited partnership law in many commonwealth jurisdictions.

[2] Essentially the Registrar of Corporate Affairs sitting in dual capacity as the Registrar of Limited Partnerships.

[3] The name of the limited partnership, its registered office address, the name of its registered agent, the name and address of its general partner(s) and its term.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions