Plans to 'tighten up' limited partnerships in Scotland published

Out-Law News | 23 Jan 2017 | 4:03 pm | 1 min. read

The UK government is seeking views on whether and how to tighten up the laws governing limited partnerships in Scotland, in response to concerns that the corporate vehicle is "being used for criminal activity".

Unlike limited partnerships established elsewhere in the UK, those established in Scotland have their own legal 'personalities'. This means that they can hold assets, borrow money from banks and enter into contracts in their own right. Elsewhere in the UK these activities must be done by the individuals or businesses that are members of the partnership.

The government is concerned that this status means that limited partnerships in Scotland can be used as a 'front' for unlawful activities, such as money laundering and tax evasion. Between 2011/12 and 2015/16 the number of limited partnerships registered in Scotland increased by 237%, while those registered elsewhere in the UK only increased by 43% over the same period.

David Mundell, the government's Scottish secretary, said that "growing concerns" around the use of the structure highlighted by campaign groups and a series of media reports "require to be taken very seriously".

"I would urge businesses and organisations in Scotland to share their views," he said. "It is important we are able to gather as much information as we can."

The call for evidence closes on 17 March 2017.

Limited partnerships are governed at a UK level by the 1907 Limited Partnership Act, despite the differences in the legal framework between those registered in Scotland and those registered in England, Wales or Northern Ireland. Limited partnerships are made up of a number of 'partners', which can be either individuals or other business entities. Each individual partner's liability under the model is limited to their capital contribution to the partnership unless they are a 'general' partner, with management and control of the partnership.

As part of its call for evidence, the government is aiming to understand the reasons for the increase in limited partnership registrations in Scotland, and to a lesser extent the UK as a whole. It has asked for submissions on the types of economic activity performed by limited partnerships, and which of their legal characteristics might act as enablers of criminal activity.

The government will also "look at other characteristics or requirements" of limited partnerships law as part of its review including transparency requirements; principal place of business requirements for the purposes of registration and the serving of legal documents; and arrangements for ending a limited partnership. However, it stressed that any future regulatory action would be subject to "further consultation and full parliamentary scrutiny".