United Arab Emirates: Investment Limited Partnerships: A Banking & Finance Perspective

Last Updated: 6 March 2018
Article by Natalia Kumar

There have been a series of reforms in Bahrain over the last couple of years in an attempt by the government to re-establish Bahrain's position as a regional financial hub in the Middle East. One such change has been the introduction of investment limited partnerships and protected cell companies (which we discussed in the December/January 2017 edition of Law Update). This article focuses on investment limited partnerships and its commercial advantages from a banking and finance perspective.

Investment Limited Partnerships ('ILP')

An investment fund is a pooled investment vehicle which acquires, holds and disposes of equity and equity related investments in unlisted companies. The investment strategy of a private equity fund will specify its target sectors (for example pharmaceutical companies) and its geographical target area (for example Europe). There are many legal structures available for such an investment fund such as a company (in Bahrain this is generally a joint stock company); an investment limited partnership or trusts and contractual arrangements. The limited partnership is the vehicle of choice worldwide for closed-ended investment funds.

The Law on Investment Limited Partnerships (Law No. 18 of 2016) was implemented on 4 August 2016 ('ILP Law'). An ILP can only undertake the Permitted Activities (which are exactly the same activities a PCC can undertake). An ILP is similar to a limited partnership company in that a general (defined as an 'Active Partner' in the ILP Law) partner's liability is unlimited and a sleeping (defined as a 'Dormant Partner' in the ILP Law) partner's liability is unlimited. ILPs are regulated by the CBB. Bahrain is now a challenger to offshore fund jurisdictions as it has a state of the art ILP Law; it is a tax advantaged regime and it has a sophisticated regulatory regime.

Management and decision making in an ILP

The general partners manage the fund or contract with the manager. The general partners sign on behalf of the fund. The limited partners cannot take part in management. There are safe harbour provisions for limited partners including:

  1. holding office or interest in general partner;
  2. contracting with the fund;
  3. consulting with or advising the general partner;
  4. reviewing and approving partnership accounts and business affairs;
  5. participating in partner meetings;
  6. sitting on investment boards or other committees;
  7. voting on specified decisions;
  8. taking certain legal actions;
  9. approving changes to the partnership agreement.

Duties of the general partner

The general partners have a duty:

  1. not to conduct affairs in a way prejudicial to partners;
  2. to render true accounts and full information about partnership to other partners;
  3. to exercise powers to meet the fund's objectives;
  4. not to compete unless specified consent is provided;
  5. to disclose personal interests in accordance with partnership agreement; and
  6. to compensate for any breach of duty or law.

Limited partner rights

The limited partners have the following rights:

  1. limited liability;
  2. access to partnership information;
  3. to take certain action on behalf of the partnership;
  4. compliance by the general partner with partnership agreement and the law;
  5. protection from prejudicial actions; and
  6. preference over general partner on distribution/dissolution.

Requirements for registration of an ILP

Registration of an ILP requires a:

  1. no objection letter from the Central Bank of Bahrain ("CBB");
  2. notarised statement from general partner including:
    1. name of investment fund partnership;
    2. particulars of business;
    3. address of registered office;
    4. statement of duration;
    5. identification of general partners;
    6. statement of partners' capital and manner of payment;
  3. formal identification documents for general partnership;
  4. limited partnership agreement; and
  5. fee for registration and the no objection letter.

Investment Fund Partnership Agreement

An investment fund partnership agreement ("ILP Agreement") is a written binding contract between all the partners. The ILP Agreement is filed with the CBB. The ILP Agreement must contain the following minimum information, namely:

  1. the manner and timing of contributions;
  2. the restrictions of transfer of interests (if any);
  3. the business of the ILP;
  4. any profit entitlements of the partners;
  5. any restrictions on the general partner;
  6. when partner meetings are to be held;
  7. when the fund terminates; and
  8. conflict of interest policy.

Advantages of an ILP

Limited partnerships are the most popular structure for closed ended funds internationally and its structure is understood by international fund investors. ILPs allows clear legislative backing to popular fund structure choice internationally. It also provides an additional option to fund promoters. ILPs catches up with neighbouring Gulf Cooperation Council ("GCC") jurisdictions namely Dubai, Abu Dhabi and Qatar. ILPs also permit clear options to be given on investors' rights and permits flexibility of constitutional documents.

ILPs clearly designates responsible entity for fund management and control. It allows flexibility for division of profits from a fund. It avoids corporate requirements for capital maintenance. Further, it places clear fiduciary responsibilities on the general partner. ILPs provides investors access and transparency. ILPs are the first GCC 'onshore' limited partnership.

With partnership laws being well established in common law jurisdictions, such as London, New York, and Singapore, the ILP Law allows firms in and/or from such jurisdictions to operate in Bahrain within a legal framework with which they are familiar. The ILP Law also supports investment companies in establishing financial investment funds, and enables them to access new funding mechanisms.

Conclusion

Bahrain is now a challenger to offshore fund jurisdictions as it has a state of the art limited partnership law, a tax advantaged regime and a sophisticated regulatory regime. It is hoped that the ILP Law will provide a strong boost to the financial sector in Bahrain and support growth in real estate funds, private equity funds, venture capital and technology funds, start-ups, and Shariah-compliant funds, as well as captive insurance. However, as the ILP Law and ILPs have only recently been implemented in Bahrain, it may take some time before ILPs are widely adopted and are the structure of choice for investment funds in Bahrain. Nevertheless, it is expected that ILPs will enhance Bahrain's competitiveness in the financial services sector by making it easier to structure investment activities.

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
 
In association with
Related Topics
 
Related Articles
 
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