Scotland LP – Confidentiality and Security
- Publicly Accessible Records: Yes, accessible but little information
- Disclosure of Beneficial Ownership to Authorities: No - that's right, NO!
- Meetings of Partners may be held: Anywhere
- Stability: Steady jurisdiction with highly regarded reputation.
Scotland LP – Financial Advantages
- Double Taxation Treaty Access: No Treaty Access
- Account Filing Requirements: No accounting / reporting requirements
- Annual Return Filing Requirements: No annual return/ reporting requirements
- Audit Requirements: No audit required.
Scotland Company – Requirements
- Capital Minimum capital contribution: GBP 2
- Registered Office Required: Yes, required and must be maintained in Scotland
- Members (equivalent to Directors): Minimum number is two.
- Your Company language: English
- Name of your Company must be ended: “Limited Partnership”/”L.P.”
- Documents required for the registration: A certified copy of your passport or ID and proof of your residential address dated less than 3 months.
- Capital: Edinburgh
- Political System: Parliamentary Democracy
- Government: Republic
- Governing corporate legislation: Partnership Act 1890, Limited Partnerships Act 1907
- Type of Law: Common
- Currency: Great British Pound (GBP)
- Exchange Control: None
- Language of Legislation and Corporate Documents: English
- Time zone: GMT+0
Summary – With thanks to Brodies Law Practice
A Scottish limited partnership (SLP) is a unique vehicle. Although it has been around for over a century, the SLP has been used in recent times for modern business purposes such as private equity and property investment fund structures. This article looks at the advantages of the SLP which make it so attractive to fund managers, promoters and investors, both domestic and overseas.
What is a limited partnership?
Like a general partnership, a limited partnership must consist of two or more partners who carry on business with a view to profit. However, unlike a general partnership, in which all partners are jointly and severally liable for all the partnership debts, a limited partnership has two types of partner: general partners who are liable for the debts and obligations of the limited partnership and limited partners whose liability is limited to the extent of their capital contributions. A limited partnership must have at least one general partner and one limited partner. In order to benefit from limited liability, a limited partner cannot take part in or interfere in management of the limited partnership. Management functions are exclusively allocated to the general partner.
Advantages of the SLP
The particular advantages of using the SLP are a combination of the following:
The hybrid status of separate legal personality coupled with tax transparency offers the best of both worlds in a way that limited partnerships incorporated in other jurisdictions cannot.
- Separate legal personality: this is a unique trait of the SLP which is not enjoyed by limited partnerships constituted elsewhere in the UK. It means that the SLP itself can own assets, enter into contracts, sue or be sued, own property, borrow money and grant certain types of security.
- Tax transparency: this means that the SLP is taxed as though it did not have a separate legal personality. No tax is payable by the SLP itself. Instead, the UK tax authorities (and other foreign tax jurisdictions) look through the partnership structure and partners are taxed on their share of partnership income and gains arrived at in accordance with their profit-sharing ratios (which can be different from the ratios in which capital has been contributed).
Uses of an SLP
- Limited management participation: the legal requirement that limited partners may not participate in management makes SLPs ideal vehicles for multi-party investor structures where management and control rests with the general partner or manager appointed by the general partner.
Funds structures. SLPs can be used flexibly in funds structures. SLP as the main fund vehicle. The SLP can be a main funds vehicle because:
- it can hold assets in its own name;
- there can be multiple but passive investors (the limited partners);
- only one person manages the investments and business of the partnership (the general partner);
- tax transparency means that each partner is taxed on the profits it receives, the amount of which will be determined by the limited partnership agreement.
SLP as a participant
Because it has separate legal personality, the SLP can also be used in funds or other structures which require 'persons' to be members. A common example of this is the use of the SLP as a carried interest partner. A 'carried interest partner' facilitates the filtering of a percentage of the profits of the main fund to the fund manager. An example of a structure is in this diagram.
The above structure comprises a main funds vehicle which is a limited partnership (and could be a SLP). The SLP is itself made one of the limited partners in the main funds vehicle. This is only possible because the SLP has separate legal personality: limited partnerships registered in other jurisdictions could not fulfil this function. The fund manager is one of the limited partners of the SLP. The profits from the main funds vehicle filter through to the SLP and from there to the fund manager (how and when this happens is determined by the limited partnership agreements). As the SLP is tax transparent, the fund manager is taxed directly on the profits it receives.
A similar structure can be used to facilitate incentive schemes for senior employees.
Tax planning and mitigation
Because it has separate legal personality and tax transparency, it is worth considering using the SLP in the context of tax structuring. SLPs are popular vehicles for use in a range of tax mitigation schemes which may be set up to reduce the liability of the partners to UK and/or foreign tax on income and chargeable gains or stamp duty land tax (known as SDLT). These structures can be rather complicated to set up but, where the requisite conditions are met, offer significant potential tax savings.
Setting up SLPs
Although not a legal requirement, there should always be a limited partnership agreement amongst the general and limited partners. This will cover, for example, the nature and amount of contributions by the limited partners, the allocation of profits, the administration of the SLP, and dissolution arrangements. The agreement should be governed by Scots law and be executed in Scotland.
SLPs have to be registered with the Registrar of Limited Partnerships at Companies House in Edinburgh. The formalities of registration can be effected within a short period. Amongst other things, the SLP must have principal place of business in Scotland in order to become registered. However, it is possible to migrate this to another jurisdiction following registration and for the SLP's activities to be managed offshore.
Taxation of partners in an SLP
UK tax resident partners are subject to UK tax on their share of worldwide partnership profits. Those partners who are not UK resident, however, will only pay UK tax if the partnership is carrying on a trade in the UK, and only on their share of profits arising in the UK. Whether or not partnership activities amount to a trade can be a difficult question, and care must be taken to ensure that the SLP will not inadvertently act in such a way as to be deemed to be carrying on a trade in the UK. Provided the partnership is not trading in the UK, however, no UK tax will be payable by non-UK resident partners.