Legal Persons in a Limited Partnerships

We have been informed by Companies House that there has been a change of policy in relation to the legal personality of partners of Limited Partnerships (LPs).

Over recent years there has been an increase in the registration of Limited Partnerships. While LTDs and LLPs have become more transparent, LPs have remained unchanged for many years. Historically LPs were able to be registered with any person or business registered as a partner. In some circumstances this allows the beneficial owner(s) to hide behind corporate bodies. Concerns have also been raised that LPs are being used for illegal activities or tax evasion.

What is changing?

From the 12th March 2018 Companies House will reject an application to register a limited partnership (LP5/LP5s/LP7/LP7s) or a notice of change of partners (LP6) where a limited or general partner appears not to have legal personality.

According to section 4 of the Limited Partnership Act 1907, a limited partnership must consist of "one or more persons called general partners.......and one or more persons to be called limited partners....."

It is now being interpreted that a ‘person’ must be a legal person with a legal personality.

What is a legal personality?

A legal person is someone with his, her or its own distinct legal personality. Partnerships must now be registered with partners that are actual persons or registered companies that have recognised legal format and legal personality. For example, in the UK a registered limited company (LTD) is seen as a legal person. It can buy, sell, enter into contract, take our loans, and do most things legally that a person can.

Appointing partners to a Limited Partnership

Where an application to register a new LP or a notice of change contains details of partner(s) that appear not to have their own legal personality, Companies House will reject the form. They may then request evidence of the legal personality of the partner(s) in question. This could be a copy of the relevant section in the legislation that gives the partner(s) legal personality or some other form of evidence that conclusively shows evidence of the partner(s) legal personality.

It would appear that this change will attempt to reduce the number of LPs that are registered with corporate structures that are difficult to identify the beneficial owners of. However, the transparency of the LP is still dependent on other countries registrars checking the veracity of incorporation details. It may be argued that Companies House, in the UK, does very little to conduct background checks on LP members and directors of companies. LPs can still be registered with corporate bodies appointed as partners and the transparency is lost in a chain of corporate appointments.