This is a checklist for transferring participations in an English limited partnership which is registered under the Limited Partnerships Act 1907.
It is for situations where a transfer has been agreed in principle on the basis of a private transaction between one of the current limited partners and the prospective transferee.
1. Due diligence and warranties – establish whether the transferee proposes to carry out any due diligence investigations in relation to the limited partnership / fund / fund manager. A prospective transferor would not usually give any warranties except in relation to its own title to the participations in question.
2. Capacity of the transferor – check that the transferor has the legal capacity to transfer. Issues may arise, for example, in the context of insolvency, death or mental incapacity.
3. Capacity of the transferee – check the legal status of the proposed transferee and whether it has the legal capacity to be a limited partner. Issues can arise, for example for English partnerships, which are not separate legal entities and cannot be partners in another partnership as such. Similar issues affect trusts. In those cases, the transferee of the legal interest in the limited partnership may need to be a nominee or trustee, which then holds the participation on behalf of the intended transferee.
4. Third party security interests – check whether the transferor has created any charge or other security interest over the participation, which would need to be released.
5. Pre-emption rights and approvals – check the relevant limited partnership agreement and any related documentation for:
- any pre-emption rights or rights of first refusal affecting the transfer of the participation
- whether the transfer needs to be approved (e.g. by the general partner or the operator), and whether approval is at that person’s discretion, or whether it cannot be unreasonably withheld
- whether the transferee or the circumstances of the transfer fall within a category of permitted transfer
6. The consideration – review the consideration or purchase price for the transfer, and whether this gives rise to any legal issues. For example, a transfer by a subsidiary company to a parent company at less than market value may constitute an unlawful deemed distribution if the shortfall is not matched by distributable reserves in the transferor.
7. Tax – review any tax issues relating to the transfer, including stamp duty.
8. Deed of transfer – assuming no issues arise from the previous items, prepare a deed of transfer. This is would usually be a short document entered into by the transferor, transferee, general partner and operator. A pro forma document may be included as a schedule to the limited partnership agreement itself.
9. Corporate approvals – prepare any corporate or other approvals which are needed, such as board minutes or resolutions. Check that a quorum is present and that any conflicts of interest are properly dealt with.
10. Form LP6 – details of the change in the limited partners must be notified to the Registrar of Limited Partnerships (Companies House) using form LP6. This filing needs to be made within 7 days after the change.
11. Advertisement in the London Gazette – the change also needs to be advertised in the London Gazette. Until this has taken place, the legal transfer of the partnership interest will have no effect.