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Introduction

Document Cited authorities 12 Cited in Related
AuthorElspeth Berry
Pages1-9

Chapter 1

Introduction

1.1 STRUCTURE OF THIS BOOK

This book explains the law relating to general partnerships, limited partnerships and limited liability partnerships (LLPs). Each chapter deals with a separate aspect of the law, in broadly chronological order through the lifetime of a business, and sets out that law in relation to the three types of business organisation. A sample partnership/LLP agreement is provided at the end of the book.

By way of introduction, this chapter outlines and briefly compares the key features of the three types of organisation which will be covered in more detail in later chapters. For comparative purposes, brief reference will also be made to private limited companies, joint ventures, and unincorporated associations.

1.2 GENERAL PARTNERSHIPS

The term ‘partnership’ is usually used to denote a general partnership (although it can encompass both general and limited partnerships in contexts where there is no distinction between them), which is defined as a relation between two persons carrying on business in common with a view of profit, a definition which is discussed further in Chapter 2. There are almost half a million general partnerships and they are governed primarily by the Partnership Act 1890 (Partnership Act), a codifying statute which contains a number of default rules which may be excluded by agreement and a number of mandatory rules which affect third parties and cannot be excluded. In relation to insolvency, they are also regulated by the Insolvent Partnerships Order 19941(IPO) which modifies and applies certain provisions of the

1SI 1994/2421.

Insolvency Act 1986 (IA 1986) and the Company Directors Disqualification Act 1986 (CDDA).

1.3 LIMITED PARTNERSHIPS

A limited partnership is similar in many ways to a general partnership, but must have at least one general and one limited partner (see 2.2.1), the latter having limited liability so long as they do not take part in management (see
6.2.1 and 7.2.2).

Limited partnerships are much less significant numerically than general partnerships, with approximately 45,000 currently registered in the United Kingdom. Since HM Revenue and Customs (HMRC) confirmed that a limited partnership used as a venture capital investment fund would be treated as a limited partnership for tax purposes, they have become the most popular vehicle for investment in private equity in the United Kingdom, typically having as general partner a private equity firm which manages the fund on behalf of the limited partner investors. They are less highly regulated than authorised unit trusts or investment trusts, and are often used for property investment because investors which are wholly or partially tax exempt can invest jointly with tax-paying bodies such as property companies without losing their exempt status. Limited partnerships used for this purpose may be listed on the Specialised Fund Market of the London Stock Exchange.

Limited partnerships are governed by the Partnership Act, but as modified by the Limited Partnerships Act 1907 (Limited Partnerships Act) (and supplemented by the Limited Partnerships (Forms) Rules 20092). Subject to the provisions of the Limited Partnerships Act, the Partnership Act and associated case law apply to limited partnerships (s 7 of the Limited Partnerships Act).

A variation on the ordinary limited partnership, the private fund limited partnership (PFLP), was introduced as a vehicle for private investment funds by the Limited Partnerships (Private Fund Limited Partnerships) Order 20173

which amended the Limited Partnerships Act. A PFLP is defined as a limited partnership which is designated as a PFLP under s 8(2) of the Limited Partnerships Act. Section 8(2) provides that the Registrar must designate a limited partnership as a PFLP if the application is made in accordance with s 8D, which requires the PFLP to be constituted by an...

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