House of Commons - Draft Legislative Reform (Limited Partnerships) Order 2009

Draft Legislative Reform (Limited Partnerships) Order 2009 - Regulatory Reform Committee Contents

3 What the draft Order proposes

7. In their report,[6] the Law Commissions noted the uncertainty in the 1907 Act about the exact timing as to when a limited partnership is deemed to have been created. This situation potentially exposes the limited partners in proposed limited partnerships to the consequences of unlimited liability until such time as the exact moment of creation has been established. There was also concern that section 5 of the 1907 Act could remove limited liability from those who believed they were limited partners if there later turned out to have been some irregularity in the application submitted to the Registrar.[7] The Explanatory Document points out that discussions during an informal re-consultation in April 2009 confirmed that these were considered real risks which could lead to a reluctance by investors to commit. The current arrangements also add to the overall legal costs of the setting up procedure.[8]

8. The Law Commissions' report therefore recommended that a limited partnership 'should exist from registration as stated in the certificate of registration'.[9] It also recommended the 'certificate should be conclusive evidence'.[10] As the Explanatory Document says, the Department 'believes that the only sensible date for a limited partnership to come into being is the date it is registered, as evidenced by the certificate issued by the Registrar'.[11] We agree.

9. Under the terms of the draft Order, for new limited partnerships the certificate of registration would provide conclusive evidence of the existence of a limited partnership and thereby ensure that those purporting to be limited partners benefited from limited liability from the date shown on the certificate. However, it would still be necessary for the substantive conditions in section 4(2) of the 1907 Act to be met. These require each limited partner to contribute an amount of capital to the partnership and allow for liability to be limited to that amount. Limited partners would still also have to comply with section 6 of the 1907 Act which prevents them from participating in the management of the business.

Disclosure of status

10. Furthermore, unlike a company, a limited partnership is not as things stand required to disclose its status in its name, although some choose to do so. The Law Commissions described this situation as presenting a significant omission since the inclusion of the suffix 'Limited' allows those dealing with the partnership concerned immediately to be aware that liability may be limited. It recommended that such provision should be introduced. The draft Order therefore seeks to incorporate this proposal for firms coming into existence after the commencement date (assuming that the draft Order is approved).

Changes to the '1907 Act'

11. In endeavouring to introduce the two changes, the draft Order proposes the replacement of section 8 of the 1907 Act, which currently deals with the manner and particulars of registration, with new and specific provisions with regard to duty to register, application for registration (this addition is stated in terms not used in the consultation version which had included proposed changes consequential on other reforms), name of limited partnership and certificate of registration. There are one or two minor consequential and incidental provisions, but the changes do not alter the basic nature of limited partnerships as created by the 1907 Act. Their purpose is to clarify and modernise the law, remove burdens from business and maintain appropriate protection. If the draft Order is approved, a review of the actual costs and benefits and whether the desired effects have been achieved will be undertaken after three years.

6 Partnership Law - Report on a reference under section 3(1)(e) of the Law Commissions Act 1985: The Law Commission and the Scottish Law Commission, November 2003. Back

7 An amended section 5 would be a consequential change if the main proposals are agreed to. Whilst this change would protect the extent of liability for innocent partners, it would not necessarily do the same for any individual involved unduly in any irregularity detected some time after the commencement of any limited partnership. Back

8 ED, para 37, p7. Back

9 Partnership Law - Report on a reference under section 3(1)(e) of the Law Commissions Act 1985: The Law Commission and the Scottish Law Commission, November 2003, recommendation 20.84. Back

10 Ibid. Recommendation 20.86. Back

11 ED, Annex C, para 5, p19. Back