By Erik Jamieson, Partner and Jeremy Pickles, Counsel at Hogan Lovells
Over summer 2015, the UK Government launched a long awaited and much anticipated consultation to modernise UK limited partnerships for the private fund industry. If introduced, the proposed reforms will have a major impact on many private equity and venture capital funds.
The consultation stems from the UK Government’s Investment Management Strategy and aims to ensure that the UK limited partnership remains the market standard structure for European private funds. While UK limited partnerships remain undoubtedly popular, it has long been recognised that the underpinning law is unnecessarily complex and administratively cumbersome. Reform is therefore long overdue and welcome even though, in many ways, it simply represents a much needed catch-up to more modern regimes that are already in place in other jurisdictions (for example, Delaware, the Channel Islands, Luxembourg and the Cayman Islands).
The proposed reforms apply only to “private fund limited partnerships” (“PFLPs”) with the existing regime remaining in place for other limited partnerships. The key characteristic of a PFLP is that it must be a collective investment scheme as defined under the Financial Services and Markets Act 2000. Most private equity and venture capital funds structured as UK limited partnerships are therefore likely to be PFLPs and will able to take advantage of the new regime. New funds will be able to register as PFLPs and existing funds will have 12 months from the legislation coming into force to apply to be designated as PFLPs.
PLFPs will benefit from, among other things
Whether the reforms meet their aims remains to be seen, but removing the uncertainties and anachronisms in UK limited partnership law is helpful to their remaining competitive as a fund vehicle. As a consequence, the reforms have been generally well received. We anticipate that the consultation process (which closed on 5 October and to which Hogan Lovells responded) will result in the details outlined above being refined and improved rather than overhauled. The reforms are likely to be effective in early 2016.
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