The review of Scottish Limited Partnerships – what’s happened in the last four years?
2017 and 2018 saw a flurry of activity by the UK Government’s Department for Business Energy and Industrial Strategy (BEIS) on limited partnerships and Scottish limited partnerships in particular. During that time, BEIS made several fact-finding trips to Scotland and issued a call for evidence paper on review of limited partnership law culminating in the publication in December 2018 of “Limited Partnerships: Reform of Limited Partnership Law”.
As we approach the fourth anniversary of the reform paper’s publication of its reform paper, reforms have yet to take place.
Why were reforms of Scottish limited partnerships proposed?
Before we answer that question, we should look at what is a limited partnership and, in particular, what is a Scottish limited partnership.
A limited partnership is a form of partnership under the Limited Partnerships Act 1907.
In a limited partnership there are:
- One or more partners who are liable for all debts and obligations of the partnership but in return they participate in the management of the partnership business and take all decisions – these are the general partners; and
- One or more partners who have limited liability but in return they cannot participate in the management of the partnership business – these are the limited partners. If a limited partner was to take part in the management of the partnership business, they would lose their limited liability status and be liable for all debts and obligations of the partnership during that period as if they were a general partner.
A Scottish limited partnership is also different from an English limited partnership, the main difference being that a Scottish limited partnership is considered as a legal person distinct from each partner. This distinction between a Scottish limited partnership and an English limited partnership is not set out though in the Limited Partnerships Act 1907 but instead in section 4(2) of the Partnership Act 1890.
It is the fundamental difference that has made Scottish limited partnerships particularly attractive as a vehicle for a variety of legitimate uses such as property fund structures and VC fund vehicles. With structures of this nature there will be different layers of entities and a Scottish limited partnership having separate legal personality can sit above another entity whereas an English limited partnership cannot.
A more detailed explanation of Scottish limited partnerships was covered in an earlier article here https://www.harpermacleod.co.uk/insights/the-review-of-scottish-limited-partnerships-and-a-guide-to-what-they-are/
I have also written a book on partnership law in Scotland https://www.sweetandmaxwell.co.uk/Product/Partnerships/Practical-Guide-to-Partnership-Law-in-Scotland-A/Hardback/30804918.
Scottish limited partnerships have been reported in the media as being used for various nefarious means. According to BEIS, they have been aggressively marketed by formation agents outside of the UK. As a result, BEIS had been actively involved in looking to reform Scottish limited partnerships to preserve their use in the funds industry and stamp out misuse.
What is the current status Scottish limited partnerships?
The answer seems to be not very much. If anything, English limited partnerships are now in the spotlight as being misused.
What has changed if the reforms have yet to be put in place yet?
Separate to the reforms proposed by BEIS, there has been a push to make corporate entities more transparent by imposing a requirement to list any persons with significant control over the corporate entity. On 6 April 2016 all non-exempted UK incorporated companies and limited liability partnerships fell within a new PSC regime where the persons with significant control was required to be disclosed to Companies House.
This was followed later on 26 June 2017 with the introduction of the Scottish Partnerships (Register of People with Significant Control) Regulations 2017, under which Scottish limited partnerships and qualified Scottish general partnerships had to disclose their persons of significant control.
Curiously, English limited partnerships and English general partnerships are not covered by the PSC regime and therefore this may be a reason for their misuse.
What is next for the reforms?
A lot has happened in the last four years and BEIS understandably prioritised Brexit and Covid.
We have been in contact with BEIS and their latest response is “the Government remains committed to introducing legislation on limited partnerships and will be doing so when Parliamentary time allows”.
On 15 September 2022, I will be speaking at the Annual Conference of the Partnership, LLP and LLC Law Forum alongside other speakers, including a representative from BEIS who will give an update on limited partnership and register reform proposals.
For more information on that event:
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