The Limited Partnership Act (the “LP Act”) was approved by the BVI’s House of Assembly in December 2017 though it has yet to be formally Gazetted and brought into force. This eagerly anticipated legislation will provide a modern framework for the formation, operation and termination of BVI limited partnerships.
It is expected that the new legislation, including the new facility for registering security interests, will be of particular interest to asset and wealth managers, especially the private equity and open ended mutual funds operators, and lenders that provide finance to these industries.
The LP Act has the following key features:
- simple, quick and cost-effective formation
- admission of limited partners without need to amend the limited partnership agreement
- extensive flexibility and freedom of contract regarding the terms of the limited partnership agreement
- ability to have limited partnership with or without legal personality
- a high degree of flexibility for dealing with limited partners who default on capital commitments
- provisions facilitating capital call financing
- protections for managers/GPs who manage a wide range of funds and no requirement for a BVI based GP
- ability to publicly register security against a limited partnership with legal personality and to obtain priority under BVI law over subsequent charges as a result of the filing
- liability of a limited partner is limited to its contribution or unpaid capital commitment which will not be lost if there is no general partner
- extensive safe harbour provisions for limited partners preserving limited liability where the limited partner engages in permitted activities that do not constitute taking part in management such as being an employee of the general partner, acting as a director of a general partner, advising the general partner about the business of the limited partnership and being a member of an investment advisory committee
- ability to indemnify partner against any and all claims made against the partner acting in that capacity other than claims arising out of fraud or gross negligence
- assets of a limited partnership with legal personality may be held by a general partner as agent of the limited partnership
- assets of a limited partnership without legal personality held by a general partner or vested in the limited partnership will be deemed to be held by the general partners jointly on trust for the limited partnership
- automatic vesting of assets and liabilities without formalities on admission or withdrawal of general partner
- application of certain corporate law concepts to limited partnerships, such as continuations, mergers, consolidations, compulsory redemptions of minority interests and arrangements
- ability for foreign limited partnership to have legal personality or elect not to have legal personality on continuation into the BVI
- ability for limited partnerships with legal personality to merge with or consolidate into a limited partnership with legal personality
- ability for foreign limited partnerships to merge with or consolidate into BVI limited partnerships or foreign limited partnerships
- assets of a solvent limited partnership that is being wound up to be applied first to creditors (other than partners or former partners); second to limited partners and former limited partners who are creditors (but not general partners) or who have a claim for the return of their capital contribution
- exemption from taxation explicitly stated
Once a limited partnership has been registered, it will not be possible to change its status from having legal personality to not having legal personality or vice versa.
The existing limited partnership statutory provisions will continue to apply to those existing limited partnerships which elect not to re-register under the new LP Act for the time being. On re-registration the limited partnership will be governed by the LP Act and will be re-registered as a limited partnership without legal personality unless the general partners elect to re-register it with legal personality but its formation and existence under the former legislation is preserved.
This legal guide is intended to provide a general overview of 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.
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