Background – Old Act
Under the old Partnership Act 1996 of the British Virgin Islands (“Old Act”) limited partnerships were not a separate legal entity from their partners. Partnership under the Old Act is defined as the relation which subsists between persons carrying on business in common with a view to a profit. In other words, it is an activity carried on by the partners rather than a separate legal person or entity to the partners.
This is largely consistent with the position of partnerships under English law (with the exception of limited liability partnerships which have legal personality and are body corporates). Many other jurisdictions in Europe and the United States of America treat partnerships as a separate legal entity to their partners and indeed one jurisdiction in the United Kingdom, Scotland has had limited partnerships with legal personality for over 200 years.
There has been much controversy and debate over the advantages and disadvantages of treating partnerships as an “activity” or an “entity” with good arguments in support of both.
New BVI Act – ability to choose
The new Limited Partnership Act 2017 of the British Virgin Islands (“LPA 2017”) avoids the controversy by providing that a limited partnership may be registered with legal personality or elect to be registered without legal personality. This allows people to choose the most appropriate alternative for their circumstances. That said once an election is made it is irreversible.
The LPA 2017 specifically provides that a limited partnership that has legal personality is not a body corporate.
What is a BVI limited partnership with legal personality if it is not a body corporate?
A limited partnership with a legal personality is a sui generis or unique legal entity or person whose characteristics are determined by the LPA 2017, the limited partnership agreement and the rules of the common law and equity that are not inconsistent with the LPA 2017.
It has “full capacity to carry on or undertake any business or activity, do any act or enter into any transaction;” and for this purpose has, “full rights, powers and privileges.” The act of a limited partnership with legal personality and the transfer of an asset to it will not be invalid simply because the limited partnership did not have the capacity, right or power to do the act or to transfer or take a transfer of the asset.
Specifying that a limited partnership is not a body corporate provides clarity that the body of common law applying to corporations does not apply to BVI limited partnerships that have legal personality and that they are viewed as partnerships in the context of partnership law.
In practical terms what does this mean?
A BVI limited partnership with legal personality:
1. can own assets and hold property in its own name;
2. is exempt from taxation (other than in very limited circumstances in respect of BVI stamp duty on the transfer of an interest in land situated in the BVI or on transactions related to interests, debt obligations or securities in or of a limited partnership which has an interest in land situated in the BVI);
3. can participate in structures where members are required to be legal persons;
4. can sue or be sued in its own name;
5. will continue to exist despite the withdrawal or admittance of partners;
6. is able to create a charge over the assets of the limited partnership;
7. can merge with one or more limited partnerships with legal personality;
8. can consolidate into a limited partnership with legal personality;
9. can merge or consolidate with (where permitted by the foreign law) a foreign limited partnership.
This legal guide is intended to provide general background on the concept of legal personality of limited partnerships under the new Limited Partnership Act (British Virgin Islands) and is for the use of the clients and professional contacts of Forbes Hare. It is not intended to be comprehensive and should not be relied on as a substitute for independent legal advice in any circumstances.