Best-known for its stunning natural beauty—jewel-colored waters, soft sandy beaches, and lush mountain ridges—the British Virgin Islands also excels among her peers in the international financial services industry. Notably, the Territory is relentless in its pursuit of refining and advancing its financial services legal structures and complying with worldwide regulatory regimes. For those who choose the jurisdiction for global company formation, investment funds, banking, and more, the BVI offers needed flexibility in a stable legal environment.
The most recent development to come from the BVI legislature is a new Limited Partnership Act that modernizes the former partnership law. Central to the Act is the advent of limited partnerships with "legal personality."
The Limited Partnership Act, or LPA, advances the concept of legal personality by recognizing that a limited partnership is more than a relationship, but not a body corporate.
Among the LPA's legal personality rights are:
- The right to institute legal proceedings in the name of the limited partnership.
- The right to apply certain corporate law concepts to limited partnerships, such as merger, consolidation, and redemption of minority interests and arrangements.
- The right by an instrument in writing to create a charge over the assets of the partnership.
- The ability for a charge to be registered against the limited partnership and for such registration to provide priority under BVI law.
A BVI limited partnership is required to have a partnership agreement. In the LPA, a model agreement is deemed to be adopted except as modified or excluded by the signed limited partnership agreement. The model agreement then allows limited partnerships to be formed quickly, particularly if the signed, written limited partnership agreement has not yet been finalized.
A limited partnership is formed by a registered agent filing an application signed by or on behalf of each general partner, setting out certain information, such as, whether the limited partnership chooses to adopt the legal personality, or not. The Registrar then issues a certificate of registration which states whether or not the limited partnership has legal personality, and the limited partnership is formed on the date specified in the certificate.
A general partner may make a contribution to the capital of the limited partnership, but this is not required.
A general partner is "required to act at all times in good faith" in the interests of the limited partnership, subject to any contrary provision in the limited partnership agreement. This allows a general partner to set up other limited partnerships without the requirement to act always in the interests of the first limited partnership; yet must always "act in good faith."
Safe harbor provision for limited partners in the LPA also incorporates some of the well-respected aspects of Delaware, the Cayman Islands, and other overseas territories and Crown dependencies. For example:
- The general partner is required to maintain a register of general partners and a register of limited partners.
- The limited partnership is required to keep a register of relevant charges.
A unique condition of the limited partnership with a legal personality, which is not found in other jurisdictions, is that a registered charge has priority over a subsequently registered charge or an unregistered charge.
In addition, the LPA carries over several other corporate concepts that are unique to BVI company law, including:
- Ability of a foreign limited partnership to continue into the British Virgin Islands.
- Ability to continue to another jurisdiction.
- Ability to merge or consolidate with another limited partnership, including a foreign limited partnership where the foreign law permits mergers and consolidations of limited partnerships.
- Ability to redeem minority partnership interests (subject to the limited partnership agreement).
- The right of a limited partner to dissent on a merger, consolidation, or mandatory redemption (subject to the limited partnership agreement).
- Ability of a limited partnership to enter into a plan of arrangement or a scheme of arrangement.
Termination, deregistration, and wind up
The LPA now offers distinct provisions for the termination, deregistration, and winding-up of a solvent limited partnership.
For example, the Registrar may strike off a limited partnership for non-payment of fees. When a limited partnership has been struck-off the register 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.
Good to know
Existing limited partnerships registered in the BVI will continue to exist under the old Partnership Act until they voluntarily re-register under the LPA. However, after ten years, all limited partnerships remaining under the old Partnership Act will be automatically reregistered under the LPA and will have two additional years to adopt a compliant limited partnership agreement.
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.