The key advantages of a PFLP over an existing English limited partnership are:

• A PFLP benefits from a “whitelist” of permitted actions which limited partners in the PFLP can take without being regarded as participating in the management of the limited partnership and so losing their limited liability. This includes, among other matters, voting on amendments to the limited partnership agreement, appointing representatives on a limited partner advisory committee, and approving action proposed by the general partner to be taken on investments. The whitelist is not intended to change the general principle that limited partners cannot actively participate in the management of the limited partnership; however, it provides welcome clarity that certain matters customarily reserved for limited partners in private funds will not cause those limited partners to risk their limited liability.
• Limited partners in a PFLP are not required to contribute any capital to the partnership. Although this will simplify the administration of the capital structure of the partnership, it is unlikely to have any significant effect in practice since limited partners’ commitments to English limited partnerships are typically structured with only a nominal capital contribution, with the remaining commitment being an advance or loan.
• A PFLP is exempt from the administratively cumbersome requirement that exists for an existing English limited partnership requiring any assignments of limited partnership interests to be advertised in the London Gazette.
• A PFLP benefits from a right given to limited partners to appoint a person to wind up the partnership if the general partner is unable to do so.
• A PFLP is also exempt from certain statutory duties imposed on limited partners not to compete with the limited partnership and to render accounts and information of things affecting the partnership to any limited partner. Such obligations usually need to be specifically excluded in the limited partnership agreement for English limited partnerships.
• A PFLP will not be required to file at Companies House:
  • changes which relate to the nature of the partnership’s business;
  • changes to the term of the partnership; or
  • details of capital contributed by any limited partner to the partnership.

This development is welcome as it will help to keep investment decisions private and confidential.

The requirement to advertise certain matters in the Gazette and for such changes to only take effect when the advertisement has been published in the Gazette has been abolished for PFLPs. The requirement was designed to protect creditors, but in practice the Gazette is not widely monitored for this purpose. This change should reduce unnecessary costs and risks.

In order to qualify as a PFLP, the limited partnership must have a written limited partnership agreement and must also be a Collective Investment Scheme (*). In practice, the vast majority of private funds vehicles should meet these requirements.

An existing English limited partnership may also elect to re-designate itself as a PFLP provided that these requirements are met. However, it will not be possible to change back from a PFLP to an ordinary limited partnership.

As the criteria required to qualify as a PFLP are straightforward, the PFLP is likely to be the default choice for private fund managers using an English limited partnership structure going forwards.

(*) An Unregulated Collective Investment Scheme (UCIS) is a pooled investment fund whereby a number of investors transfer their money into one pot. A fund manager will then take the money and invest it into various assets. The FCA states that UCIS investments are in fact only suitable for a small group of investors.

The PFLP law also modifies the 1907 Limited Partnerships Act so that the limited partners in a PFLP are not required to make a capital contribution. Crucially, however, it also provides that – if they do contribute capital – that capital can be returned at any time during the partnership’s life. This is important because limited partners generally contribute capital to the fund partnership but expect to receive it back when investments are realised.

General UK limited partnership law stipulates that capital can only be returned at the end of the life of the partnership, which necessitates somewhat artificial provisions in the limited partnership agreement so that the bulk of an investor’s contribution is made by way of loan to the partnership. This device will no longer be needed, and will bring the UK vehicle more into line with other international structures.

There are various other changes designed to simplify the administration of the PFLP and to make the default position on fiduciary duties more like the position generally negotiated between the parties.

Effective since April 2017, the private equity and venture capital industry has welcomed these changes, which undoubtedly improve the competitiveness of the UK limited partnership structure. While this new option for private fund managers is not radically different from the existing structure, it does enable the UK to continue to offer an onshore structure that combines tax transparency with legal certainty, flexibility and relatively light administrative burdens, and the government’s clear hope is that this will encourage more private funds to remain onshore.

However, whether the UK’s new vehicle will actually encourage more fund managers to use a British structure for their funds is not clear.

A limited partnership may only be a PFLP if it is:

• constituted by an agreement in writing (this is satisfied by a usual form of limited partnership agreement (“LPA”)); and
• a collective investment scheme (“CIS”) (as defined by S235 FSMA 2000). This condition will be met, and the partnership can be a PFLP even if it takes advantage of one of the exemptions available to a CIS as S235 (5) FSMA is dis-applied.

The general partner will need to confirm that these conditions are satisfied but, practically speaking, a private investment fund structured as a limited partnership should easily satisfy the requirements and have the option to be designated as a PFLP.

To register a new PFLP there is no requirement to provide information relating to:

• the nature of the partnership’s business;
• the term of the partnership; or
• the sum of capital contributed by any limited partner.

And, as mentioned above, the general partner will be required to confirm that the limited partnership meets the conditions of a PFLP (as set out above).