Public consultation on the proposed amendments to the Limited Partnerships Act
A limited partnership (“LP“) is a vehicle for doing business in Singapore, comprising at least one general partner who assumes unlimited liability for the obligations of the company (usually the fund manager), and one or more limited partners (investors) who are not personally liable obligations beyond their agreed commitments, provided that they do not participate in the management of the LP.
LPs are popular among investment funds because of the relative ease of day-to-day administration and management and the flexibility of the capital structure. Their characteristics include:
1. Limitation of liability for investors;
2. Greater confidentiality than companies;
3. Greater flexibility than companies; and
4. Tax transparency, because the partnership is not treated as a separate tax entity from the partners.
In Singapore, LPs are governed by the Limited Partnerships Act (“LP Act“). On October 4, 2021, the Accounts and Business Regulatory Authority (“ACRA“) announced a public consultation in force from October 4, 2021 to November 1, 2021 out of 14 proposed changes to the LP law, as indicated in Annex A consultation documents, to:
1. make the limited partnership vehicle more attractive for financing limited partnerships; and
2. Update the existing provisions of the SQ Act for all types of SQs.
In this update, we take a look at the main changes on offer below.
Amendments Relating to Fund Limited Partnerships
(a) Specific definition for fund LPs
A proposed critical change is the introduction of a specific definition for an LP fund, which will follow the existing definition of “appropriate limited partnership” as defined in Regulation 12 of the Limited Partnerships Regulation (“”LP Regulations“), namely a limited partnership created primarily for the purpose of establishing an investment fund where the fund is managed by (a) a general partner who is an approved fund manager; or (b) an approved fund manager appointed to manage the fund by the general partner.
With the new definition, ACRA proposes to allow an existing LP that meets the definition of a fund LP to apply to be designated as a fund LP, and is looking to see if there are specific questions that should be addressed in legislation when making such a designation.
(b) Expansion of Safe Harbor activities
Limited Partners cannot participate in the management of the Partnership as otherwise they will be liable for all debts and obligations of the Partnership incurred during the period in which they do so as if they were a General Partner. However, there are exceptions for “safe haven activities” listed in Schedule 1 of the SQ Act (“Safe Harbor List“), that Sponsors will not lose their limited liability status by simply engaging in such activities.
ACRA proposes that new activities be added and that the scope of some existing safe-haven activities be extended with respect to fund limited partnerships as outlined in Annex B consultation documents. Examples are:
- Serve on a board / committee of (a) the LP; (b) the general partner of the limited partnership; and (c) the limited partners of the limited partnership
- Appoint / nominate a person to serve on a board / committee of the above, as well as revoke such appointment
- Extended scope for existing activities
- Allow limited partners not only to contract with the LP, but also to contract with the general partner or other limited partners
- Allow sponsors to act not only as an agent or employee of the LP within the framework of the powers conferred by the partners, but also as a “contractor”
(c) No Fiduciary Obligations to Limited Partners
ACRA proposes to reverse the current default position when a sponsor is subject to Articles 28 and 30 of the Partnership Act, which impose an obligation on the partners to be accountable and not to compete with the partnership respectively. It also suggests clarifying that Limited Partners have no fiduciary obligations to LP or other partners.
Nonetheless, LPs would still be able to impose the above obligations on Limited Partners through the Partnership Agreement, if commercially desired.
(d) Regulation of transfer of interest
At present, the LP Act does not regulate when a valid transfer of interest is made, and this is left to market practice. ACRA proposes that the consent of the general partner be required for the transfer of a limited partner’s interest, subject to the partnership agreement. Such a transfer would result in the admission of a replacement limited partner and would not result in a technical dissolution of the limited partnership.
(e) Introduction of a re-domiciliation regime
Unlike companies and companies with variable capital (“VCC“), fund LPs do not have a re-domiciliation framework in place. ACRA proposes to introduce such a framework with the following criteria:
- The fund manager is either based in Singapore or a global fund manager located in Singapore; and
- The fund must meet minimum requirements similar to those imposed for the re-domiciliation of a CCV.
Amendments relating to all SOPs
(a) Expansion of Sponsored or Limited Entities
Currently, only natural or legal persons can be sponsored or sponsored. ACRA proposes to introduce additional forms that a general partner or limited partner can take, namely (a) LPs; (b) non-Singaporean limited partnerships with legal personality; and (c) non-Singaporean limited partnerships without legal personality. If the general partner takes the form in (a) and (c), a local director must be appointed by the general partner.
(b) Clarify that a general partner or limited partner may act as trustee or representative
ACRA suggests that it be expressly stated that a general partner or limited partner may act as a trustee or agent. In addition, ACRA seeks advice on the advisability of distinguishing between limited companies and limited companies, so that general partners are not permitted to act as trustees or representatives.
(c) Regulation of the assignment and transfer of interest
ACRA proposes to regulate when an assignment of an interest is validly made in all SQs, rather than leaving that to market practice. More specifically, an assignment of a right, debt or other share chosen by a limited partner would require the consent of the general partner (subject to the partnership agreement), while an interest in the partnership would be transferable in its entirety. or partly in accordance with the company. agreement.
(d) Not to require Limited Partners to obtain a court order for the liquidation of the Partnership
Currently, the affairs of a limited partnership must be wound up by the general partners, unless the court orders otherwise. ACRA proposes to allow limited partners to appoint a third party to wind up the limited partnership if the general partner is unable to do so, subject to the agreement of the partners. With this amendment, limited partners can appoint a third party to wind up the limited partnership without obtaining a court order, thereby reducing the regulatory burden.
(e) Grant a grace period for the appointment of a replacement general partner
Currently, a limited partnership will be dissolved upon the death or bankruptcy of a general partner (subject to the terms of any agreement between the partners). ACRA proposes to grant a grace period of 30 days for a replacement general partner to be appointed, allowing the continuity of the partnership and avoiding business disruption.
However, ACRA is seeking advice on this proposal, noting issues such as the inability to make management decisions during the grace period, as well as the status of creditors’ claims (the general partner being responsible for those claims). .
The consultation contains important proposed amendments to the SQ Act, ranging from introducing new treatments for SQs of funds such as a re-domiciliation framework, to reducing the regulatory burden in areas such as as fiduciary duties and the dissolution of an LP.
Parties affected by the proposed changes or who wish to seek clarification or provide comments on it should feel free to submit their concerns to ACRA by November 1, 2021, or to contact the partners below, who are well placed to answer any questions. .