UK Private Fund Limited Partnerships (PFLPs) | Complete Setup Guide

Key Fact: The UK PFLP regime was developed under the Legislative Reform (Private Fund Limited Partnerships) Order 2017 and helped to reform the way funds are structured through the absence of mandatory capital contribution, investor protection through a statutory whitelist, and simplified filing.

Introduction: Understanding the UK PFLP Framework

The UK Private Fund Limited Partnership (PFLP) regime was developed under the Legislative Reform (Private Fund Limited Partnerships) Order 2017, amending the historic Limited Partnerships Act 1907. Created specifically to bring the legal framework of the UK to date in respect of collective investment schemes, the UK PFLP regime targets private equity, venture capital, real estate and infrastructure funds.

By stripping away the administrative burden of outdated Victorian-era legislation, the regime helps position the UK as an attractive and competitive jurisdiction for fund domicile. Operating a UK PFLP structure will allow fund managers to enjoy the benefits of flexibility coupled with investor protection.

What Is a UK Private Fund Limited Partnership (PFLP)?

The PFLP designation is a special type of UK limited partnership with the added benefit of providing for tax transparency along with limited liability protection for LPs. The tax-transparent approach ensures that the profits and losses are passed directly through to the investors based on their respective residence and taxation status.

Two essential statutory requirements must be met to qualify as a PFLP:

• Written Limited Partnership Agreement (LPA): The limited partnership must be established by means of a written agreement specifying the terms of the management and the profit sharing of the business.
• Collective Investment Scheme (CIS) Qualification: It needs to be a Collective Investment Scheme as defined under Section 235 of the Financial Services and Markets Act 2000 (FSMA) (or would do so were it not for specific statutory exemptions).

Key Benefits of Choosing a PFLP Over a Traditional Limited Partnership

Choosing to go with a more modern UK PFLP structure provides considerable benefits compared to traditional 1907-style limited partnerships:

How Does the PFLP Statutory White List Protect Limited Partners?

It is vital for institutional investors that monitoring the investment will not lead to unlimited liability. According to Section 6A of the Limited Partnerships Act 1907, there is a statutory white list that gives an exhaustive list of actions that limited partners may undertake without being perceived as participating in the management of the business of the partnership.

Under this safe harbor, Limited Partners can safely:

• Appoint representatives to the Advisory Committee or LPAC (Limited Partner Advisory Committee).
• Approve or reject fund accountings, financial statements, and valuation methods.
• Amend the Limited Partnership Agreement (LPA).
• Asserting rights or voting rights in feeder funds or parallel structures.
• Vetoing or approving significant fund events such as key person events, extension of the investment period, or conflicts of interest.

Understanding PFLP Capital Contribution Rules and Financial Flexibility

Classic UK limited partnerships required the registration of fixed capital contributions from LPs at formation, amounts which were legally non-withdrawable throughout the life of the fund without being liable for the amount repaid.

The PFLP regime brings a new dimension to these fund financial structures:

• No Mandatory Capital: LPs are not obligated by law to contribute any capital on joining the partnership.
• Flexible Funding: LPs can have flexible funding mechanisms that are purely partner loan facilities.
• Permitted Withdrawals: LPs are free to withdraw capital/contributions from the fund without becoming liable for the amount repaid.
• Enhanced Privacy: The amount of capital contributions does not have to appear on the official Companies House register.

Administrative and Compliance Benefits of the UK PFLP Regime

Establishing the UK PFLP framework brings about significant alleviation of regulatory and procedural obligations for the fund manager and GPs:

• Exemption from Gazette Notices: The transfer of LP interest no longer needs to be published in the London or Edinburgh Gazette.
• Simplified Winding-Up: Should the GP become insolvent or be dissolved, LPs will have the right to appoint someone else to wind up the partnership without a court’s authorization.
• Disapplication of Partnership Act 1890 Duties: Ordinary statutory duties such as accounting duties and the duty to account for competing private profits between the LPs are not applicable.

Step-by-Step Guide to UK PFLP Registration and Designation

Establishing a UK PFLP requires careful adherence to procedural steps with Companies House.

Step 1: Confirm Eligibility Under the Private Fund Conditions

Verify that the fund meets the definition of a Collective Investment Scheme (CIS) under Section 235 of FSMA 2000 and has a formal operating plan.

Step 2: Prepare the Written Limited Partnership Agreement

Create a strong LPA that will define the rights and duties of the GP and the LPs in terms of fees, distributions, whitelist governance, etc.

Step 3: Register a New PFLP Using Form LP7

For the creation of a new PFLP, Form LP7 (“Application for registration of a Private Fund Limited Partnership”) should be used. This application contains details of the partnership and the GP, including the names of both.

Step 4: Apply to Re-designate an Existing Partnership Using Form LP8

For the re-designation of an existing UK limited partnership to a PFLP, Form LP8 (“Application for re-designation as a Private Fund Limited Partnership”) will be used.

Step 5: Submit the General Partner’s Declaration

The GP needs to sign and provide a statutory declaration that the LPA agreement is in writing and the fund satisfies the collective investment scheme requirements.

Step 6: Obtain the Certificate of Designation and Understand Its Permanence

After Companies House completes the filing process, a Certificate of Designation will be issued. It is important to remember that PFLP designation is irreversible and cannot be converted back to limited partnership form.

How Arnifi Simplifies UK PFLP Setup and Ongoing Administration

Coordinating the requirements for setting up a UK PFLP requires smooth integration of structuring, corporate secretary work, and compliance activities. At Arnifi, we have developed an integrated platform to ease the process of fund deployment.

Fund Structuring and Registration Support

The GPs are walked through the fund structuring process at Arnifi, where LPAs that maximize the use of the Section 6A whitelist are drafted. 

Visualising Partnership Structures With Arni Organogram

Use the Arni Organogram tool to map out complex partnership structures of the private equity, feeder funds, parallel funds, and the relationship between the GP and LP.

Planning Setup Costs With Arni Cost Calculator

Calculate the costs of fund formation, including costs for legal activities, regulatory filings, and yearly budgets through the use of Arni Cost Calculator. 

Managing Documentation With Arni Docs

Manage all fund documents like subscription agreements, side letters, and LPAs via the Arni Docs online document management system.

Supporting AML and Sanctions Screening With Arni AML Checker

Comply with global financial standards through Arni AML Checker, which will automate the process of investor onboarding, KYC checks, and AML screening.

Managing Ongoing Compliance, Accounting, and Banking Requirements

Arnifi provides comprehensive solutions that include annual filings with Companies House, partnership tax return preparation, corporate governance management, and banking partner introductions.

Frequently Asked Questions About UK PFLP Setup

What Is a UK Private Fund Limited Partnership (PFLP)?

It is a unique form of a UK limited partnership designed specifically for collective investment funds characterized by tax transparency, flexibility of capital terms, and safe harbor protection from liability.

What Are the Eligibility Requirements for PFLP Status?

The fund should be organized in accordance with a Limited Partnership Agreement (LPA) and fit the definition of the Collective Investment Scheme (CIS) in Section 235 of FSMA 2000.

What Is the Difference Between Form LP7 and Form LP8?

Form LP7 is for registration of a new company as a PFLP. Form LP8 is for redesignation of a pre-existing conventional UK limited partnership as a PFLP.

How Long Does It Take to Register a UK PFLP?

Ordinary Companies House registration usually takes 5 to 10 business days; however, there are expedited incorporation services offered by professional incorporators.

Can an Existing UK Limited Partnership Be Re-designated as a PFLP?

Yes, redesignation is possible for pre-existing 1907 Act partnerships according to Form LP8, provided they meet the statutory conditions and the GP submits the required declaration.

Is PFLP Designation Reversible Once Approved?

No. Once a partnership receives its Certificate of Designation as a PFLP, the designation is permanent and cannot be reversed.

Can Limited Partners Participate in Fund Decisions Without Losing Limited Liability Protection?

Yes, provided that such activities remain within the statutory white list outlined in Section 6A of the Limited Partnerships Act 1907, e.g., taking part in an advisory committee and participating in LPA amendments.

Are Capital Contributions Mandatory for PFLPs?

No. Unlike traditional limited partnerships, PFLPs do not require LPs to make formal capital contributions.

Are PFLP Capital Contributions Disclosed on the Public Register?

No, capital contribution amounts are not required to be publicly filed to protect the privacy of the fund managers and investors.

What Administrative Filing Requirements Are Reduced Under the PFLP Regime?

PFLPs do not need to issue Gazette notices regarding LP interest transfers; they have simplified statutory reporting and winding-up provisions.

Does PFLP Status Automatically Provide Tax or Regulatory Exemptions?

No, although being a transparent structure, PFLPs should be managed in accordance with UK AIFMD and the appropriate FCA regulatory regimes.

What Documents Are Required to Establish a UK PFLP?

The required documents are the Limited Partnership Agreement (LPA) in written form, the LP7 (or LP8) form, statutory declaration of the General Partner, and subscription agreements of the investors.

Conclusion: Establishing a UK PFLP With the Right Structure and Support

The UK Private Fund Limited Partnership framework is perfect for private equity, venture capital, and real estate fund managers as it gives an agile, transparent, and investor-friendly structure. With the updated capital withdrawal regulations, streamlined compliance, and LP safe harbors, the formation of a UK PFLP framework becomes a perfect base for international funds.

With the assistance of professional fund administration firms such as Arnifi, your fund will be able to comply with all the regulations and run efficiently. Contact Arnifi today to accelerate your fund launch.

References

• UK Legislation: Legislative Reform (Private Fund Limited Partnerships) Order 2017
• Financial Conduct Authority (FCA): FSMA 2000 Section 235 Collective Investment Schemes
• British Private Equity & Venture Capital Association (BVCA): BVCA Technical Briefings on PFLP Structure