Out-Law News | 02 May 2018 | 12:30 pm | 2 min. read
The Department for Business, Energy and Industrial Strategy (BEIS) has launched a consultation (44 page / 575LB PDF) to gather views on a series of reforms which it said were designed to limit the misuse of limited partnerships.
BEIS said the National Crime Agency had identified a “disproportionately high volume” of suspected criminal activity involved Scottish limited partnerships. It said one money laundering scheme had used over 100 Scottish limited partnerships to move up to $80 billion out of Russia.
The government also said just five frontmen were responsible for over half of 6,800 Scottish limited partnerships registered between January 2016 and mid-May 2017. By June 2017 over half of all Scottish limited partnerships were registered at just 10 addresses.
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.
BEIS said Scottish limited partnerships were a “critical building block” in UK private equity structures, but new legislation was required to cut down on their misuse.
The proposed reforms cover limited partnerships from formation to dissolution. The government has suggested that all those seeking to register a limited partnership should be registered with an anti-money laundering supervisory body, and to provide evidence of this.
Currently limited partnerships do not need to maintain a connection with the UK. BEIS is proposing two alternative measures designed to ensure the authorities know where business is taking place.
The first would be for a limited partnership’s principal place of business to be in the UK, and for regular evidence of this to be provided. The second option, similar to the position for companies, would allow a partnership’s principal place of business to be outside the UK but with a service address in the UK.
The government also said it wanted to increase the transparency of limited partnerships. Last year it introduced a form of annual reporting for Scottish limited partnerships, asking them to maintain a register of persons with significant control (PSCs) over them, and to report this information to Companies House where it will be available for public inspection. A regular reporting requirement is now likely to be extended to all limited partnerships.
The consultation also includes a proposal that the registrar should be able to strike off limited partnerships in certain situations. Currently, the registrar has no strike-off powers and even when limited partnerships are voluntarily dissolved they are still shown as being active.
Commercial law expert Craig Connal QC of Pinsent Masons, the law firm behind Out-Law.com, said it remained unclear what impact the reforms might have on the legitimate use of limited partnerships in areas such as the funds industry.
“Corporate entities ought in one sense never to make the business headlines. They ought to be the technical details which remain in the background because they’re purely practical vehicles for business,” Connal said.
“The test is going to be whether the government can achieve its objective of reform to restrict abuse of these vehicles without impacting legitimate investors. It is critical that we don’t throw the baby out with the bath water,” Connal said.
The consultation closes on 23 July.