LIMITED PARTNERSHIP ACT 1907
The Association of Chartered Certified Accountants (ACCA) has reviewed the consultation paper on the above issue and presents below its comments on the issues raised.
We note at the outset that, despite the extremely low number of limited partnerships, and the even lower number of functioning limited partnerships, there is no consideration given by the consultation paper to whether the structure in question might be abolished. We do not argue for its abolition but note that the limited partnership was in fact introduced into English law long before the limited company became widely available - and, of course, long before the recent legislation to create the LLP - in order to address liability-related problems with the traditional partnership structure. Its modern usefulness as a vehicle for film and collective investment ventures appears to have evolved somewhat by accident.
Our specific comments are set out below and refer to the numbered consultation questions in Part VI of the paper.
Specific Comments
6.3 (1) It is unfortunate that, with the introduction of the LLP, there are now two different types of partnership with similar and potentially confusing names. The similarity of the abbreviations of these names adds to the potential for confusion. As for whether or not a new name should be found for the limited partnership, however, the Commission will bear in mind that the existing name is very familiar to professional practitioners and also that there seems to be comparatively little demand for firms of this type. It remains the case though that the term 'limited' in the name of both the LLP and the limited partnership refers to a limitation of liability on the part of elements of the partnership: there is no indication, in the vehicles' names, of the real differences in terms of partners' liability. In view of this, it seems unhelpful to have two vehicles whose names amount to the same thing.(2) If an alternative name were to be favoured, a generic rather than business-specific name should be sought. We suggest either of the terms 'mixed partnership' or 'mixed liability partnership'.
6.6 (1) There seems no reason in principle why corporate bodies should not be either general or limited partners.
(2) We believe that the positions of general and limited partners should be kept clearly separate. A corporate body should not be allowed to act as a general partner if it is controlled by a limited partner of the same firm, or if the limited partner is connected with the corporate body.
6.7 (1) Acting as both general and limited partner would seem contrary to the interests of the limited partner, since he or she would thereby assume unlimited liability. Such a scenario would undermine the whole rationale of the limited partnership and we would not support a change which would validate a partner holding this dual role. Persons who wish to have limited liability and participate in the firm's management have the option of setting up as an LLP.
6.8 We consider that the existing definition of 'business' in the 1907 Act is sufficiently wide to encompass commercial investment activities.
6.9 (1) We do not believe that a description of the firm's nature of business is likely to be useful information to a third party inspecting the firm's file and would support its deletion.
(2) We believe that the identification of those partners who are limited partners constitutes useful information for third parties. Limited partners should therefore continue to be separately identified. A list of partners which did not indicate those whose liability was limited would be incomplete. Moreover, the absence of any public notice of which partners were 'general' and which were 'limited' could conceivably enable the latter to engage in prohibited activities and escape the consequences.
6.10(1)We would support the introduction of a requirement for limited partnerships to inform the Registrar of the location of a registered office, rather than the location of their principal place of business. It should be made clear that documents may be served on the partnership at its registered office.
6.11 Agreed.
6.13 In the light of the statistics quoted in paragraph 1.3 of the consultation paper, which suggest that a high proportion of registered limited partnerships are not active, the proposal that the Registrar be given power to initiate and conduct strike-off proceedings appears sensible.
6.14 (1) It is anomalous that no indication is currently required, in a firm's name, of the fact that it is a limited partnership. The 1907 Act requires prescribed information to be filed at Companies House and kept up-to-date. This includes information on the identity of limited partners and their capital contributions. In the absence of any public notification of a limited partnership's status, this information may not be as useful to third parties as it is, presumably, intended to be. We therefore support the suggestion that there should be disclosure of the firm's limited liability status.
As for the suggestion that the firm's name ends with a prescribed suffix, we suspect that the abbreviation 'LP' would be likely to cause confusion with the suffix 'LLP', which is now becoming widely understood. The unabbreviated form is too cumbersome for firms to be expected to incorporate in their names and use at all times.
Unless a suitable alternative name and suffix for the limited partnership can be found, a possible solution would be for the limited partnership to be obliged to make separate disclosure, on all its pro-forma communications - stationery, invoices, receipts etc - of the fact that it is a limited partnership, and adding its place of registration and registration number. This would be comparable to the disclosure required to be made by charitable companies under s68 of the Charities Act 1993.
6.15 (1) We do not believe that the existing disclosure provisions of the Business Names Act 1985 have the effect of causing limited partners to be construed as general partners. The existing requirements for all partners' names to be disclosed should continue to apply. Any doubt as to the position of limited partners could be addressed by changing the Act so as to require indication of which partners were limited. Even though the limited partners cannot bind the firm, their identity and role in the firm is of interest to those with whom the firm deals.
6.16(1) Given that the limited partners will be partners in the firm, we believe that it is reasonable to expect all the partners, including the limited partner(s), to sign the original registration forms. Thereafter, delivery of changes to the registration particulars should be the responsibility of the general partners in keeping with their management responsibilities.
(2) Agreed.
(3) Agreed.
(4) Agreed.
6.17(1) The 1907 Act provides that the limited partner is not liable for the debts and obligations of the firm. The 1890 Act provides that each partner is liable not only for the debts and obligations of the firm but, separately, for the firm's obligations resulting from its wrongful acts and omissions and for penalties incurred by the firm. While practice appears to have accepted that these additional liabilities are not to be imposed on limited partners since they are inconsistent with the intentions of the 1907 Act, there is sufficient theoretical uncertainty on this question to warrant a revised statute making clear that for as long as a person remains a limited partner that person's liability is to be restricted to the amount of capital contributed.
(2) This would seem unnecessary provided that the law is clear as regards the limited partner's liability.
(3) No.
6.18(1) Yes. The terminology used in the 1907 Act needs to be up-dated in this area and the position of limited partners clarified.
(2) We suggest that there should be a general entitlement for limited partners to consult with general partners on the firm's affairs and to have access to information about the firm's finances and activities, and a specific prohibition (subject to any express exemptions) against any direct or indirect involvement in decision-making with respect to any aspect of the firm's operations, such involvement to include the exertion of any influence or pressure on any of the firm's general partners.
6.19 Agreed. The proposed approach would strengthen the hand of general partners who felt that a limited partner was attempting to exert influence on them.
6.20 Of the suggested exemptions from the definition of management activity, we believe that the reference in 1(b) to the limited partner's involvement in the approval of the firm's accounts should be deleted, since that appears, to us, to amount to clear involvement in management activity. As regards the reference to 'advising' the general partners, in 1(a), this too could easily constitute management activity. We suggest that some provision could be considered which is comparable to the definition of 'shadow director' in the Companies Act: a limited partner could be allowed to offer the benefit of his experience and knowledge to the general partners as long as the latter were not accustomed to acting in accordance with the limited partner's directions or instructions.
6.21(1) We do not see a case for restricting payments to limited partners where contributions have been lost in the course of business.
(2) If the position of the limited partner is analagous to the position of the shareholder, the liability should be based on agreed rather than actual contributions.
6.22 We consider that it is undesirable for the law to hold limited partners who have left the firm personally liable (to the extent of their re-claimed capital) for debts and obligations which may only come to light some time after they have ceased to be limited partners. Whatever time limit is decided upon, if any, will to some extent be arbitrary, but it should take account of the fact that i) the departing limited partner had the right of access to financial information about the firm and its undertakings but ii) had no duty to be aware of those matters and no management responsibility for the firm's management or financial obligations. We suggest that, in the light of these factors, the time limit should be no more than twelve months.
6.23 Agreed.
6.24 Agreed.
6.25 It may be appropriate in the circumstances to provide that the standard expectation that a partner attends meetings of the firm on a regular basis be modified with respect to the limited partner. Other than this, the limited partner should be subject to the same fiduciary obligations as the general partners.
6.26 Agreed.
6.27 Agreed.
6.28 Agreed.
6.29 It may in future be appropriate for the court to be involved in the dissolution of a limited partnership where the sole limited partner is subject to a bankruptcy restriction order (or where the firm operates or continues to operate without a limited partner).
6.30 We suggest that the courts retain their discretion to decide whether or not the particular circumstances of the case warrant the making of a winding up order.
6.31 It would not be appropriate for limited partners to be involved in any vote to appoint a partnership liquidator. If necessary they should be given the right to apply separately for the court to dissolve and wind up the firm.
We would make the additional point that the consultation paper does not discuss the implications for the limited partnership of the Government's current intention to remove the twenty partner limit on partnerships. Given that the 1907 Act makes express provision for a twenty partner limit, this will need in due course to be deleted from the Act.