Scottish Law Commission (Reports)

PART XV

ESTABLISHING AND OPERATING
A LIMITED PARTNERSHIP
(1): REGISTRATION AND DE-REGISTRATION

Introduction to Parts XV to XIX

15.1     In this and the next four Parts we discuss our proposals for the reform of limited partnerships. As we have stated, our concern is not to create a default code for limited partnerships; such partnerships are used for specialised purposes and will normally be governed by formal agreements. Rather our aims are (a) to integrate the rules relating to limited partnerships into the law relating to general partnerships, (b) to remove doubts about the way in which a limited partnership may operate and (c) to produce a coherent body of law relating to limited partnerships.
15.2     In the Joint Consultation Paper on Limited Partnerships^[1] we asked consultees if we had correctly identified the main priorities for reform. Consultees generally agreed with our priorities but several raised issues with which we deal in our recommendations for the reform of partnership law generally^[2] or which are beyond the scope of our reference.^[3]
15.3     There was general support for retaining the name "limited partnership" which was well established and understood.^[4]
15.4     As we are concerned only with the statutory rules which are specific to the regulation of limited partnerships, we present the issues in this and the next four Parts in a different way from our proposals in relation to general partnerships.^[5] In particular, without setting out the terms of the 1907 Act in each instance, we look at our propositions for reform, summarising the response of consultees and making our recommendations. We also discuss provisions in the draft Bill on which we have not consulted but which we think are not controversial.
15.5     In this Part we look at the regime for registration of a limited partnership and recommend reforms including a mechanism to allow defunct partnerships to be deleted from the register. As registration is a means of publishing changes in a limited partnership, we discuss whether these changes should have effect only when they are registered or can have effect at an earlier date. We also discuss how to publish the limited liability of the limited partners in such a partnership and the relationship between regulation under partnership legislation and the Business Names Act 1985.
15.6     In the next Part we discuss the central role of the general partner in managing the limited partnership and his responsibility for registration obligations. We also discuss whether there is a need for a special definition of "business" in relation to limited partnerships and the adaptation of rules which apply to general partnerships.
15.7     In Part XVII we deal with the liability of the limited partner and in Part XVIII the rights and obligations amongst themselves of the partners in a limited partnership. In Part XIX we address the case for retaining a limited partnership without legal personality. The reason for this suggestion is the increased use of English limited partnerships in recent years as vehicles for private venture capital investment overseas and the need to avoid uncertainty in the tax treatment of such limited partnerships by foreign tax authorities. To achieve this end we recommend the introduction of an option to register a special limited partnership.

The registration of a limited partnership: an overview

15.8     Under the existing law, registration with the Registrar of Companies is the essential step in the creation of a limited partnership. Limited partnerships must be registered as such, otherwise every limited partner is deemed to be a general partner.^[6] Registration also gives third parties the means to find out if the partnership is a limited partnership and, if so, which of the partners have limited liability.
15.9     We are not proposing to abolish registration. However, in the Joint Consultation Paper (LP) we identified some uncertainties surrounding the registration of a limited partnership.^[7] In particular, it is unclear exactly when the partnership obtains limited liability status.^[8] Is it once the application is filed, or only when the registration certificate is issued? This is important because if the partnership begins to carry on business before it has limited liability status all partners will have unlimited liability. There are also some uncertainties about the registration of a limited partnership that has not yet begun to carry on business and therefore does not constitute a partnership.
15.10     We therefore provisionally proposed that a limited partnership should exist from the date of registration of the statement signed by partners, as stated in its certificate of registration.
15.11     There was general support among consultees for the proposal although two consultees^[9] in a joint response argued for an earlier date. They suggested that a limited partnership should gain limited liability status at the date of its formation as a partnership, provided that the application form for registration was delivered for registration within a specified period of, say, ten days. This would enable the limited partners to have limited liability in relation to the transactions of the limited partnership from the moment of formation.
15.12     We do not favour this suggestion. Limited liability is a privilege which should not be available until those who may transact with a partnership have the means to ascertain the existence of such limited liability. We also foresee that it could create uncertainty for the limited partners. If the application is not delivered within ten days, or is returned because it is illegible, the limited partners would find that they were general partners in the partnership until the form was submitted correctly. This is not acceptable: limited partners should have a reasonable degree of certainty as to when they obtain limited liability and when the partnership may safely begin to trade.
15.13     Under our proposals, registration will operate in the following way. A partnership will become a limited partnership on the date of registration of the statement signed by the partners, as stated in the certificate of registration. This provides certainty as to the creation of the limited partnership and the date of that creation. This certainty will benefit both third parties and limited partners.

The pre-existing partnership

15.14     If a partnership exists before registration, the registration will confer limited liability status, and the pre-existing partnership will become a limited partnership. For example, a general partnership, Smith & Jones, may want to change its status and become a limited partnership. In such a case the partnership entity will continue (now as Smith & Jones LP),^[10] but upon registration the limited partners will gain limited liability. At the same time the partners, both general and limited, will become subject to the requirements of the draft Partnerships Bill relating to limited partnerships.

The new partnership

15.15     We also provide for the circumstance where a general partnership does not exist before registration. In many cases parties will envisage from the beginning that their undertaking will be a limited partnership. In such cases it is not in their interest to begin to carry on business before registration, as none of the partners will have the benefit of limited liability. As the persons will not have carried on business before registration there is no partnership yet in existence.^[11]
15.16     A limited partnership is a partnership with special characteristics. The entity which is registered as a limited partnership is a partnership. There needs to be a partnership for there to be a limited partnership. We propose therefore that where persons apply for the registration of a limited partnership before they have started to carry on business, the partnership will be formed on the date of registration.
15.17     Thus the partnership comes into existence on the earlier of:

(1) two or more persons starting to carry on business with a view to profit;^[12] or

(2) registration of a limited partnership.

15.18     Once the limited partnership is registered, the registration scheme is important when limited partners join or resign from the limited partnership. Under our proposals a person does not become a limited partner until he is registered as such. Similarly he does not cease to be a limited partner until his withdrawal is registered. The register does not simply record something which has occurred independently. It is constitutive: registration confers limited liability upon a partner.
15.19     In this way it will be clear when a person becomes a limited partner and when he ceases to be a limited partner.^[13] This is not the case under the 1907 Act. A search of the register will reveal whether a person is or remains a limited partner. This is important both to third parties and also to limited partners, as we propose that general partners should be responsible for registration requirements.
15.20     In summary, registration is the step which transforms a partnership into a limited partnership. It is also fundamental to the creation of limited partners. As under the current system, the register will also provide information to third parties. However under our proposals third parties will not need to consult the register to discover whether a partnership is a limited partnership. We propose that limited partnerships will be required to use the suffix "LP" or a similar suffix as part of their name.^[14]

Formation of a limited partnership

15.21     In the light of our proposals on registration discussed above, we recommend that:

(1) A limited partnership should exist from the date of registration of the limited partnership as stated in the certificate of registration; (Draft Bill, cls 54(1) and 67)

(2) The registrar should be obliged to register the partnership or proposed partnership as a limited partnership, if satisfied that the statutory requirements are complied with, and to supply it with a registration certificate. (Draft Bill, cl 67(1))

The content of the certificate of registration

15.22     The registrar is to issue a certificate of registration on registration of the statement signed by the partners. We think that the certificate need not contain all the details in the statement. It can be confined to (a) the name of the limited partnership, (b) the fact of its registration as a limited partnership and (c) the date of registration. The certificate therefore will provide certainty to the partners and others as to the existence of the limited partnership and the date of its formation as such a partnership. The other details in the statement will be contained in the register and will be available for inspection.^[15]
15.23     We therefore recommend that the certificate of registration of a limited partnership should contain the following information: (a) the name of the limited partnership, (b) the fact of its registration as a limited partnership and (c) the date of registration. (Draft Bill, cl 67(2))

Status of certificate of registration

15.24     In the Joint Consultation Paper (LP) we proposed that (a) the certificate of registration should be conclusive evidence that the limited partnership was duly formed on the date stated and (b) the certificate of registration (whether original or as amended) should be conclusive as to other particulars, unless the contrary is proved.^[16] These proposals won almost unanimous support from consultees. Since the consultation period we have decided to recommend that the certificate of registration should record only the name of the partnership, the fact of registration and the date of registration.^[17] We consider therefore that the certificate should be conclusive evidence both of these particulars and that all registration formalities have been complied with.^[18] We note that section 13(7) of the Companies Act 1985 is a precedent.^[19] We consider that it is appropriate also to provide that a copy of or extract from an original document sent to the registrar, if signed by the registrar, should be admissible in evidence in all legal proceedings.
15.25     We therefore recommend that:

(1) The certificate of registration should be conclusive evidence (a) that all registration formalities have been complied with, (b) that the partnership was registered as a limited partnership on the date stated in the certificate and (c) that the partnership name is as specified in the certificate; (Draft Bill, cl 71(1))

(2) The certificate of a change in the name of a partnership should be conclusive evidence (a) that the partnership was registered as having a new name on the date specified in the certificate and (b) that its partnership name is as specified in the certificate; (Draft Bill, cl 71(2))

(3) A copy or extract from an original document sent to the registrar should if signed by the registrar be admissible in evidence in all legal proceedings as of equal validity with the original document. (Draft Bill, cl 71(3))

Information to appear on the register

15.26     Section 8 of the 1907 Act requires the following particulars of a limited partnership to be registered:

(1) the firm name;

(2) the general nature of the business;

(3) the principal place of business;

(4) the full name of each of the partners;

(5) the term, if any, for which the partnership is entered into, and the date of its commencement;

(6) a statement that the partnership is limited, and a description of every limited partner as such; and

(7) the sum contributed by each limited partner, and whether paid in cash or how otherwise.

15.27     In response to our questions in the Joint Consultation Paper (LP) most consultees supported the retention of a description of the general nature of the business, although some questioned its utility. There was also strong support for retaining the registration of the names of limited partners. It was suggested that the privilege of limited liability should be balanced by the obligation of public disclosure. Two joint consultees^[20] opposed the registration of the names of limited partners as certain other jurisdictions, such as Jersey, did not require such disclosure and suggested that some investors object to investing in UK limited partnerships because of the disclosure requirements. Another consultee^[21] suggested that it involved an administrative burden which gave little benefit while another^[22] thought that the removal of the twenty partner limit was a reason for removing this requirement.
15.28     The Inland Revenue considered that it would be helpful for the administration of taxes if the addresses of partners could be listed but recognised that the registrar should be given powers to restrict the publication of this information.^[23]
15.29     Before setting out our recommendations on the contents of the register we discuss the existing requirement to register a principal place of business.

The principal place of business

15.30     Section 8 of the 1907 Act provides:

The registration of a limited partnership shall be effected by sending by post or delivering to the registrar at the register office in that part of the United Kingdom in which the principal place of business of the limited partnership is situated or proposed to be situated a statement signed by the partners… .

15.31     In the Joint Consultation Paper (LP) we identified a number of uncertainties surrounding the registration of a principal place of business and we expressed misgivings as to the policy behind this requirement.^[24] We were aware of doubts among the users of limited partnerships as to the consequences of a change in the principal place of business after initial registration, whether the change was within the United Kingdom or the limited partnership moved its principal place of business offshore. We observed that the general view appears to be that there is no requirement that the limited partnership must maintain its principal place of business or, indeed, conduct any business in the United Kingdom.
15.32     We provisionally proposed to abolish the requirement for registration of a principal place of business and to replace it by a requirement to have a United Kingdom registered office. We also proposed that registration of a limited partnership should be at the register office in the part of the United Kingdom in which the registered office is or is to be sited.^[25]
15.33     Consultees strongly supported the proposals. Only two consultees expressed doubt. One argued that it was not appropriate to associate the limited partnership with a limited company: registration of a limited partnership created limited liability; it did not create the partnership. The Inland Revenue was concerned that abolishing the requirement to have a principal place of business in the United Kingdom might assist a limited partnership that operated for criminal purposes or that engaged in tax avoidance or evasion. Another consultee suggested that, like companies and LLPs, the registered office of a limited partnership should be specified as being situated in England and Wales, in Wales or in Scotland.
15.34     As we see no strong policy justification for requiring a limited partnership to have a principal place of business in a particular part of the United Kingdom at the time it first registers, and as it appears that some limited partnerships registered under the 1907 Act do not maintain a principal place of business or conduct any business in the United Kingdom, we think that the requirement initially to have a principal place of business in the United Kingdom should be abolished.^[26] In its place we think that it is sufficient that a limited partnership should have a registered office in England or Wales or in Scotland and that the register should state the address of that office.

The contents of the register

15.35     In the Joint Consultation Paper (LP) we suggested that there was a case for reducing the amount of information contained in the register.^[27] We consider that we can safely reduce the particulars of a limited partnership which require to be registered. We propose that neither the description of the general nature of the partnership's business nor the duration of the partnership should be registered. In relation to the former, we see little advantage in registration particularly where no issue of vires arises. In relation to the latter, we see no significant benefit in requiring the registration of the duration of a partnership; the obligation could be burdensome if over time the partners alter the agreed duration of their partnership.
15.36     The register should contain the name under which the partnership is registered as a limited partnership.^[28] It should contain the names and addresses of all general partners. It is the general partners who have unlimited liability for the debts and obligations of the limited partnership and it is therefore important that third parties have access to their names and addresses. We also propose that the name of each limited partner should be registered. Registration confers limited liability on limited partners. In addition a third party may benefit from access to the names of limited partners should one or more involve themselves in management and thus lose limited liability. Registration of his name also enables a limited partner to check that the general partner has duly registered him as such and thereby limited his liability. We also propose that the register should contain the amount of any capital contribution which a limited partner makes to the partnership. This information, combined with the obligation to register any increase or withdrawal of capital, will enable a third party to ascertain the extent of a limited partner's liability should he withdraw his capital while he is registered as a limited partner.^[29]
15.37     It is necessary also to register the address of the registered office of the limited partnership. We consider that it is useful also for the register to state the jurisdiction in which the registered office is located. Finally, when a partnership exists before registration, the register should disclose the date of the formation of the partnership. This should enable third parties to identify the period during which the partners of a pre-existing firm had unlimited liability for the entity's debts and obligations, when the partners carried on business before registering the firm as a limited partnership.
15.38     We therefore recommend that:

(1) The requirement for the registration of a principal place of business, initially in the United Kingdom, should be abolished and be replaced by the requirement to have a registered office in England or Wales, or in Scotland; (Draft Bill, cl 62)

(2) The register should contain the following information concerning the limited partnership:

(a) The name under which the partnership is registered;

(b) The name and address of the proposed general partner (or, if there is more than one, all of them);

(c) The name of each limited partner and the amount of any capital contribution made by him to the partnership;

(d) Whether the registered office of the partnership is in England or Wales, or in Scotland;

(e) The address of the registered office;

(f) If the partnership existed before registration, the date of formation of the partnership. (Draft Bill, cl 66)

Registration of changes in limited partnerships

15.39     As time passes, the details contained in the application for registration will become out-dated. There is a need for a mechanism to keep the register up to date. We think that this should be done in the following way.

Change of partnership name

15.40     As the register contains the name of the partnership and confers limited liability on the limited partners, we think that a change of the name of a limited partnership should not be effective until the change is registered.^[30] To do so, the limited partnership must deliver a notice to the registrar specifying its existing name and its proposed name. If satisfied that the statutory requirements in relation to the name are met,^[31] the registrar will alter the register to record the change of name and supply the partnership with a certificate of the change of name. The certificate will record the change of name and the date on which the change was registered and will be conclusive evidence of those facts.
15.41     We recommend that a change of partnership name will not have effect until the change is registered. To effect such a change a notice must be delivered to the registrar who, if satisfied that the statutory requirements in relation to the name are met, must alter the register and supply the partnership with a certificate of the change of name. The certificate will be conclusive evidence of the partnership name and the registration of the new name on the date specified in the certificate. (Draft Bill, cls 68 and 71(2) and Schedule 7, para 1)

New limited partners

15.42     As registration is a precondition for the establishment of a limited partnership, we think it appropriate that a person should not enjoy the status of a limited partner until he is registered as such. To this end, there should be delivered to the registrar a notice that a person is a proposed limited partner. The notice should specify the name of the limited partnership, the name of the proposed limited partner and the amount of the capital contribution (if any) being made by him. On receipt of the notice, the registrar should register the person as a limited partner.
15.43     We recommend that a person should become a limited partner only on his registration as such. Notice that a person is a proposed limited partner, specifying his name and any capital contribution to the partnership, should be delivered to the registrar. If the proposed limited partner is a general partner in the partnership (and is applying to become a limited partner) the notice must state that fact. On receiving the notice the registrar must register the person as a limited partner (and, where the applicant was a general partner, record the fact that the partner has ceased to be a general partner in the partnership). (Draft Bill, cls 54(1) and 68 and Schedule 7, para 3)

A person becoming a general partner

15.44     As a general partner has unlimited liability for the debts of the partnership there is not the same imperative for registration before he can become a partner. We think therefore that a person should become a general partner on the date on which he and the limited partnership have agreed. The default rule is that a person may become a partner only with the agreement of all the general partners,^[32] but a limited partnership may have its particular rules which govern the admission of partners. Notification of his joining the partnership should be made to the registrar within twenty-eight days of his joining.
15.45     We recommend that a person should become a general partner on the date agreed between him and the limited partnership and that notification of his joining the limited partnership as a general partner should be made to the registrar within twenty-eight days after he joins. (Draft Bill, cl 68 and Schedule 7, para 5)

A person ceasing to be a general partner or a limited partner

15.46     A person may cease to be a general partner or a limited partner in many circumstances. Death of an individual or dissolution of a non-natural person will terminate a person's status as partner. On such an occurrence, we think the fact that a person has ceased to be a partner should be registered within twenty-eight days. We see no need to regulate when a person ceases to be a general partner. This can be left to the general law of partnership and the terms of the partnership agreement.
15.47     As we have recommended above, a person may only become a limited partner on registration. Similarly, we consider that the general rule should be that a person may cease to be a limited partner only when his withdrawal from the limited partnership is registered. We think that the register should govern the status of the limited partner, except on the death or dissolution of that partner or on dissolution of the partnership.^[33]
15.48     We consulted on the proposition that section 10 of the 1907 Act should be repealed. Section 10, among other things, requires the advertisement in the Gazette of a statement when a general partner becomes a limited partner and when the share of a limited partner is assigned.^[34] We also proposed that the draft Bill should provide a complete mechanism by which changes in the status of partners and the composition of the limited partnership can be made without the requirement for notice in the Gazette or elsewhere. There was almost unanimous support for these propositions. We have therefore adopted a policy that there should be no notice requirements in relation to changes in the limited partnership beyond the registration of those matters which the draft Bill requires to be registered.
15.49     We recommend that:

(1) A person should cease to be a general partner in accordance with the rules of law in relation to general partnerships or the terms of the partnership agreement but he may incur liability to third parties by holding out until his change of status is published in the register; (Draft Bill, cls 26 and 68 and Schedule 7, para 5(5))

(2) Subject to paragraph (3) below, a person should not cease to be a limited partner until his change of status is published in the register; (Draft Bill, cls 54(2) and 68 and Schedule 7, para 4(7))

(3) A person should cease to be a limited partner on death or (if a non-natural person) dissolution and the fact that he has ceased to be a general partner or limited partner (as the case may be) should be registered within twenty-eight days after the death or dissolution. (Draft Bill, cls 54(3) and 68 and Schedule 7, paras 4(1) and 5)

Other changes in the limited partnership

15.50     A change in name of an existing general partner or limited partner, a change of the address of a general partner, the death or (if not an individual) dissolution of a limited partner, and an increase or withdrawal of a limited partner's capital contribution^[35] are all changes which will make the register outdated unless there is an obligation to deliver to the registrar a notice specifying the nature of the change. We think that it would be convenient to have a uniform period of twenty-eight days for delivery of the relevant notice.
15.51     We therefore recommend that a limited partnership should, during its continuance, be under a duty to deliver to the registrar a notice of any of the following changes within 28 days of the event:

(1) A change of name of an existing general or limited partner;

(2) A change of address of an existing general partner; and

(3) An increase or withdrawal of the capital contribution of a limited partner. (Draft Bill, cl 68 and Schedule 7, para 5)

15.52     We have recommended that a limited partnership should have a registered office.^[36] If a limited partnership wishes to change the address of its registered office, it is important that the address is publicised as it is the address to which important communications^[37] may be sent. Indeed, unless the change of address is registered the new office would not be the registered office.
15.53     We therefore recommend that a limited partnership may change the address of its registered office only by delivering notice of the change to the registrar who must alter the register. The change in address should have effect only from the date when it is registered. (Draft Bill, cl 68 and Schedule 7, para 2)

Registration of corrections

15.54     In any registration system, errors may occur in transcribing onto the register the information which has been provided to the registrar. The register can be corrected if the registrar is empowered to alter the erroneous entry and, where the erroneous information has been included in a certificate, to issue a revised certificate to the partnership.
15.55     We therefore recommend that, on the application of a general partner or another person who has authority to make the application on behalf of the partnership, the registrar should be empowered to register a correction to the register and that, if he does so, he should be required to supply the partnership with a revised certificate. (Draft Bill, cl 68 and Schedule 7,
para 6)

Administration of the registration system

Delivery of documents

15.56     In order to allow the registration system to operate using e-mail and the internet, we require to make provision for "delivery" to the registrar in electronic form.^[38] We also think that it would be advantageous to allow for contracting out of the functions of the registrar in accordance with the Deregulation and Contracting Out Act 1994 by laying down mandatory rules as to what amounts to delivery.
15.57     We therefore recommend that the registrar should be empowered to approve the form and means by which a document may be delivered to him and that where the registrar directs that documents are to be delivered to an authorised person at a specified address, delivery of a document to another address should not be treated as delivery. (Draft Bill, cl 68 and Schedule 9, para 1)

Registration of information

15.58     The registrar should have discretion as to how he keeps the registered information provided that it is possible to inspect the information and to produce a legible copy. This will enable the registrar to maintain an electronic register. We also think that it would be appropriate that the registrar be required to keep the originals of documents sent to him for ten years.^[39]
15.59     We therefore recommend that the registrar should be empowered to keep the registered information in any form he thinks fit, provided that it is possible to inspect the information and to produce a copy of it in legible form. The registrar should be required to keep original documents, which are sent to him, for ten years. (Draft Bill, cl 68 and Schedule 9, para 2)

Inspection of register

15.60     It is necessary to provide for inspection of the register. Section 16 of the 1907 Act provided for the inspection of statements filed by the registrar and the payment of an inspection fee.
15.61     We therefore recommend that any person should be entitled to inspect information kept by the registrar and to require a copy of information kept in the register or a certified copy of, or extract from, the original of any document. A person should also be able to require a certificate of the registration of a limited partnership or a certificate of the registration of a change in the name of a limited partnership. (Draft Bill, cl 68 and Schedule 9, para 3)

Power to make regulations

15.62     Section 17 of the 1907 Act empowers the Board of Trade to make rules. We think that the provision should be re-enacted in modern language. This will enable the administration of the register to be adapted to meet changing circumstances and fees to be fixed at a level which will enable the registrar to provide an efficient service to persons using or dealing with limited partnerships. We understand that there is demand for the register to be available on-line but that the current level of fees cannot support that facility. If the Secretary of State is empowered to fix the level of fees, it should be possible to fund an on-line register.
15.63     We recommend that the Secretary of State should have power to make regulations to:

(1) Impose fees in respect of (i) registration of a limited partnership or of information relating to such a partnership, (ii) the inspection of the register or any documents or information relating to a limited partnership or (iii) the provision of a certificate or an extract or copy of any document;

(2) Provide for the performance by the assistant registrar or other officers of acts which the registrar is required to perform in relation to limited partnerships; and

(3) Make provision for the translation of documents delivered to the registrar which relate to limited partnerships whose registered office is in Wales. (Draft Bill, cl 68 and Schedule 9, para 4)

The name of a partnership and disclosure of limited liability status

Name of limited partnership

15.64     Under existing law limited partnerships are not governed by the rules of the Companies Act 1985 restricting the use of certain names.^[40] We asked consultees whether there should be any restriction on the names which may be registered for limited partnerships, and if so what restrictions. Most consultees supported the introduction of restrictions similar to those affecting companies. While there did not appear to have been serious problems, several consultees suggested that the use by limited partnerships of names which were the same as those of registered companies could cause confusion.
15.65     On balance, while recognising that there is not a major practical problem, we think that it would be appropriate to have a similar regime for the names of limited partnerships as that which applies to other registered commercial bodies, namely companies and LLPs.
15.66     We therefore recommend that a limited partnership should not be registered by a name:

(1) Which is the same as a name appearing in the registrar's index of company and corporate names, unless the person whose name appears in the index consents;

(2) The use of which as the name of the partnership would in the opinion of the Secretary of State constitute an offence; or

(3) Which in the opinion of the Secretary of State is offensive. (Draft Bill, cl 63(3) - (5))

Disclosure of limited liability status

15.67     In the Joint Consultation Paper (LP) we observed that it was a significant omission in the 1907 Act that the name of a limited partnership need not disclose its status.^[41] We suggested that if a third party is put on notice that he is dealing with a limited partnership he will then have an opportunity to consult the register.
15.68     Almost all consultees agreed with our provisional proposal that the name of a limited partnership must end with "limited partnership" or a suitable abbreviation such as "lp". One consultee, which has extensive practical experience of limited partnerships, suggested that the suffix should be "limited partnership" because most limited partnerships already used that in their names. Another suggested that many firms already use the suffix "LP". Two consultees proposed that registration details (limited status, registered number and registered office) should be given on the partnership's stationery.
15.69     Almost all consultees also supported our provisional proposal that all documents issued by a limited partnership must use the name with the proposed suffix.
15.70     In view of the general support for the proposals, we think that the name of a limited partnership should end with a suitable suffix which identifies its status as such. We consider that there should be stated on the documents of a limited partnership both the name of the limited partnership and the address of its registered office. We do not think that it is necessary for the documents of a limited partnership to contain further details other than the requirements of the Business Names Act 1985.
15.71     We therefore recommend that:

(1) The name of a limited partnership must end with either "limited partnership" or the abbreviation "lp" or "LP" ; (Draft Bill, cl 63(1))

(2) If the registered office of the limited partnership is in Wales the alternative suffix may be "partneriaeth cyfyngedig" or the abbreviation "pc" or "PC"; (Draft Bill, cl 63(2))

(3) The name of the limited partnership (which includes the suffix) and the address of its registered office must be stated on any partnership document. (Draft Bill, cl 65(1) and (2))

Limited partnerships and the Business Names Act 1985

15.72     We also raised the issue of the requirements of the Business Names Act 1985 (the 1985 Act) in the context of our proposals, mentioned above, to require disclosure of status in the name of a limited partnership. We asked whether the 1985 Act should be amended so as to remove or limit the requirement to give details of limited partners.^[42] In the alternative, in case there were concerns over holding out,^[43] we asked whether there should be statutory clarification that the inclusion of the name of a limited partner in the firm-name or in the particulars disclosed under the Business Names Act 1985 does not by itself hold out a limited partner as a general partner.
15.73     There was general support among consultees for the amendment of the 1985 Act although some supported the alternative of a statutory clarification in relation to holding out. We think that the amendment of the Business Names Act 1985 is preferable. It will bring Britain into line with competing jurisdictions.
15.74     We consider that a limited partnership should not be subject to the 1985 Act if the partners carry on business under its registered name. The Act should apply only where the partners carry on business under another name. Where the 1985 Act does apply, we see no need for the names of limited partners to be stated on partnership documentation as their names can be obtained from the register.
15.75     We have recommended^[44] that the 1985 Act should have effect where the partners in a limited partnership use a name other than its registered name in carrying on business so that (a) the suffix to the name of the limited partnership is a permitted addition under section 1; (b) the name of a limited partner need not be stated on any business letter, written order, invoice, receipt or demand but merely the registered name of the limited partnership and the name of each general partner; (c) a list of partners is maintained at the registered office of the limited partnership; and (d) the limited partners incur no liability for non-disclosure in terms of the Act.

Improper use of "limited partnership" as a name

15.76     We think that it would be appropriate to penalise the improper use of the term "limited partnership" or its equivalent Welsh name or any contraction of the term as a business name or title. As we recommend that it should be compulsory to disclose limited liability status, it is important that persons are discouraged from misleading the public by making inaccurate representations as to status.
15.77     As we propose to regulate the use of the term "limited partnership" it is necessary to provide for the legitimate use of the term in Britain by partnerships which are constituted overseas and which have the essential characteristics of a limited partnership. We consider that a partnership which is registered outside Great Britain and in which some of the partners by registration have limited liability for partnership obligations should be entitled to describe itself as a "limited partnership" in Britain. We refer to such bodies as "oversea limited partnerships".
15.78     We therefore recommend that only (a) a limited partnership, (b) a partner in a limited partnership, (c) a partnership registered outside Great Britain and in which one or more of the partners by registration has limited liability for partnership obligations ("oversea limited partnership") and (d) a partner in an oversea limited partnership should be allowed to use the expression "limited partnership", its Welsh equivalent or contractions or imitations of those expressions at the end of their business names. Any other person using those expressions in the last words of their business name or title should be guilty of an offence. (Draft Bill, cl 64)

De-registration of a limited partnership

15.79     At present Companies House has no power to de-register a limited partnership. In the Joint Consultation Paper (LP) we suggested that this creates two difficulties. First, over time the register becomes progressively out of date. Secondly, a company cannot use the same name as a limited partnership while such a name remains on the Companies Act index. We suggested that it would be sensible to have a provision similar to that applying to companies to enable defunct partnerships to be struck off.^[45]
15.80     Consultees unanimously supported our proposal. Some consultees suggested that we should make clear what would be the effect of de-registration if a partnership remained in being when de-registered, namely the conversion of the limited partnership into a general partnership, thus removing the limited liability of the limited partners. Two consultees^[46] also suggested that there should be a mechanism by which a limited partnership could convert itself into a general partnership.
15.81     We therefore confirm our provisional proposal for a de-registration system. We have modelled the system on the Companies Act 1985 to include safeguards against inappropriate de-registration. There is, of course, a fundamental difference between registration and de-registration. A partnership may be brought into being by registration if the partnership did not exist before registration.^[47] By contrast, de-registration does not break up a partnership or dissolve it. De-registration removes the limitation on the liability of the limited partners, making them general partners in a continuing partnership. We have therefore sought to introduce safeguards to protect a limited partner against an inappropriate de-registration.
15.82     We also think that there should be a mechanism for re-registration where the partnership was capable of existing as a limited partnership when it was de-registered and where a back-dated re-registration would be just and equitable. We propose that re-registration may be achieved by a combination of (a) an application to register the partnership as a limited partnership in the normal way and (b) a court order putting the limited partnership and other persons in the position in which they would have been if there had been no de-registration.
15.83     We recommend that:

(1) The registrar should have power to de-register a limited partnership:

(a) If the registrar receives an application for de-registration after all the partners of the limited partnership (or former partners of a dissolved limited partnership) have agreed; (Draft Bill, cl 68 and Schedule 8, para 1) or

(b) If after inquiry the registrar has reasonable grounds for believing that one of the grounds for doing so exists; (Draft Bill, cl 68 and Schedule 8, para 2)

(2) The grounds for de-registering a limited partnership referred to in paragraph (1)(b) above are (a) that it has been dissolved, (b) that it does not have one or more general partners and one or more limited partners, (c) that it does not have a registered office and (d) that where a limited partnership, which was not previously a general partnership, has been formed by registration, the partners have not begun to carry on business together during a period of at least two years immediately after registration; (Draft Bill, cl 68 and Schedule 8, para 2(2) and (4))

(3) Before the registrar de-registers a limited partnership under paragraph (1)(b) above, the registrar must have made preliminary inquiries by sending two letters to the registered office of the limited partnership, the second letter following six weeks after the first letter. In the letters the registrar should state his belief that a ground for de-registering exists and invite a reply showing why the partnership should not be de-registered. Where there are reasonable grounds for believing that the partnership does not have a registered office the letters of inquiry may be sent to the general partner or partners and to any limited partner whose address is known to the registrar; (Draft Bill, cl 68 and Schedule 8, para 3)

(4) In addition, before de-registering under either of paragraph (1)(a) or (b) above, the registrar must publish a de-registration warning in the Gazette at least three months before he de-registers a limited partnership; (Draft Bill, cl 68 and Schedule 8, paras 1(1)(b), 2(1)(c) and 4)

(5) If the registrar de-registers a limited partnership, he must publish notice of the fact in the Gazette and de-registration takes effect on the date specified in the notice; (Draft Bill, cl 68 and Schedule 8, para 5)

(6) If the de-registered partnership re-registers itself as a limited partnership, the court should be able on the application of the partnership or any partner, within 3 years of de-registration, to make an order to backdate the limited liability of the limited partners to the date of de-registration and otherwise to put the limited partnership and other persons in the position they would have been in if the limited partnership had not been de-registered; (Draft Bill, cl 68 and Schedule 8 para 6(1), (5) and (6))

(7) The court may make the order in paragraph (6) above if it is satisfied (a) either that the application for de-registration had not been properly authorised or that none of the grounds for de-registering the partnership existed when it was de-registered and (b) that it is just and equitable to do so. (Draft Bill, cl 68 and Schedule 8, para 6(2), (3) and (4))

Note 1    Consultation Paper No 161; Discussion Paper No 118, para 1.12. Hereinafter “Joint Consultation Paper (LP)”.    [Back]

Note 2    Eg whether all partners in a partnership must receive a share of the profits, whether a partnership can hold property in its own name and whether there should be continuity of partnership.    [Back]

Note 3    Eg whether registering a limited partnership constitutes operating a collective investment scheme for the purposes of the Financial Services and Markets Act 2000 and the status in the United Kingdom of limited partners in partnerships constituted in other jurisdictions.     [Back]

Note 4    Joint Consultation Paper (LP), para 1.14.    [Back]

Note 5    Much of the law relating to general partnerships is not contained in the 1890 Act but in rules of common law. By contrast most of the rules specific to limited partnerships are contained in the 1907 Act.    [Back]

Note 6    1907 Act, s 5.    [Back]

Note 7    Joint Consultation Paper (LP), paras 3.23 – 3.25.     [Back]

Note 8    1907 Act, ss 8 and 13.    [Back]

Note 9    The APP and British Venture Capital Association (BVCA).    [Back]

Note 10    See recommendation on disclosure of limited liability status: para 15.71 below.    [Back]

Note 11    See the draft Bill, cl 1(2).    [Back]

Note 12    A general partnership is established and it may then apply for registration as a limited partnership.    [Back]

Note 13    The limited partner may of course lose limited liability by participation in management. See para 17.23 below.    [Back]

Note 14    See para 15.71 below. Once the third party is thus informed as to the status of the partnership, he can consult the register if he requires more information such as the names of the limited partners.    [Back]

Note 15    See paras 15.60 – 15.61 below.    [Back]

Note 16    Joint Consultation Paper (LP), para 3.26(2) and (3).    [Back]

Note 17    See para 15.23 above.    [Back]

Note 18    It would be anomalous to provide that the particulars recorded in the certificate were conclusive and at the same time to allow evidence to rebut a presumption of compliance with all registration formalities. We provide separately for the correction of errors which may occur in transcribing onto the register information which has been provided to the registrar. See para 15.55 below.    [Back]

Note 19    The Companies Act 1985, s 13(7) provides that a certificate of incorporation is conclusive evidence that registration requirements have been complied with and does not leave open the possibility of contrary proof.     [Back]

Note 20    The APP and British Venture Capital Association (BVCA).    [Back]

Note 21    3i plc.    [Back]

Note 22    Igloo Regeneration.    [Back]

Note 23    See the analogous suggestions in relation to company directors in “Directors’ Home Addresses – A Consultative Document” URN 01/1140 (2001).    [Back]

Note 24    Joint Consultation Paper (LP), paras 3.18 – 3.21.    [Back]

Note 25    Joint Consultation Paper (LP), para 3.22.    [Back]

Note 26    We note that the practice of not maintaining a principal place of business in the United Kingdom means that the existing law does not require limited partnerships to maintain a substantive presence in the United Kingdom. We see the Inland Revenue’s concerns mentioned in para 15.33 above in that context.    [Back]

Note 27    Joint Consultation Paper (LP), para 3.15.    [Back]

Note 28    This is necessary for the conclusive status of the certificate and to allow people to search the register electronically in future.    [Back]

Note 29    See paras 17.31 and 17.33 below.    [Back]

Note 30    Limited liability is conferred on partners by registration of the partnership as a limited partnership with a particular name and by registration of the names of the limited partners. See paras 15.21 and 15.38 above. We have recommended that the certificate of registration be conclusive evidence of the partnership name. See para 15.25 above. As a result, any unregistered change of name would be ineffective. In addition it is not desirable that a limited partnership should trade under a name which is different from its registered name as that would impede third parties from using the register to ascertain information about the limited partnership and thereby weaken the effectiveness of the register.     [Back]

Note 31    See paras 15.64 – 15.66 below.     [Back]

Note 32    Draft Bill, cl 60(1).    [Back]

Note 33    If the limited partner involves himself in management he loses limited liability for the period of that involvement. A person will also cease to be a limited partner on the dissolution of a limited partnership.    [Back]

Note 34    Joint Consultation Paper (LP), para 3.30.    [Back]

Note 35    We consider that the registration of increases and decreases in a limited partner’s capital contribution will assist a third party to identify when a limited partner, who has drawn out or received back all or part of his capital contribution, has thereby incurred personal liability for partnership obligations to the extent of the amount withdrawn or received back. See draft Bill, cl 56(2) and (3).    [Back]

Note 36    See para 15.38 above.    [Back]

Note 37    Such as the registrar’s preliminary inquiry letters when considering de-registration. See para 15.83 below.     [Back]

Note 38    See the draft Bill, cl 72(2) which empowers the registrar to approve the manner in which a document may be authenticated.    [Back]

Note 39    This is the time during which the Registrar of Companies is required to keep the originals of company documents: see Companies Act 1985, s 707A, which was inserted by the Companies Act 1989, s 126.     [Back]

Note 40    Companies Act 1985, s 26 prohibits the registration of certain categories of name, including a name which is the same as one already appearing in the list of company names (s 26(1)(c)). There are no equivalent restrictions on similar names for businesses under the Business Names Act 1985.    [Back]

Note 41    Joint Consultation Paper (LP), paras 3.33 – 3.34.    [Back]

Note 42    Joint Consultation Paper (LP), para 3.39.    [Back]

Note 43    We doubted whether such a concern was well founded, but recognised that a limited partner would require to be cautious and to avoid allowing his name to appear in the firm name or on its business letters without some clear indication that he was a limited partner. SeeLindley & Banks, 29-10 – 29-13.     [Back]

Note 44    See paras 13.23 – 13.24 above.     [Back]

Note 45    Joint Consultation Paper (LP), para 3.31.    [Back]

Note 46    The APP and BVCA (a joint submission), and the Law Society of Scotland.    [Back]

Note 47    If a pre-existing partnership is registered as a limited partnership, the partnership becomes a limited partnership and limited liability is conferred on the limited partners who are registered as such. See the draft Bill, cls 1(5), 54(1), 56(1) and 67.     [Back]