The potential use of EIS Funds, Luxembourg structures and UK limited partnerships continues to evolve.
New EIS Fund Structure
A new Enterprise Investment Scheme (“EIS”) fund structure will be introduced in April 2020.
This is a variation on the “approved EIS fund” structure which usually requires initial investments to be made within 12 months of the closing date of the fund.
The new structure is one of the outcomes from the Government’s Patient Capital Review in November 2016 and the new structure is intended to ensure that more patient capital is invested in the knowledge intensive companies.
The new structure will have the following features: -
MBM has recently taken the lead on advising on the core documentation for a new Luxembourg tech fund seeking cornerstone pan-European investors. There are of course important differences between the UK and Luxembourg rules and the documentation remains subject to final review and sign-off by Luxembourg based advisors. However, there is enough common ground to allow us to take lead responsibility for drafting the fund documentation.
In recent years, the authorities in Luxembourg have modernised the legal and regulatory landscape to ensure that Luxembourg becomes one of the first choice destinations for VC and PE funds.
Their efforts have been successful and fund managers will now consider a Luxembourg structure when previously the UK may have been their natural assumption. Uncertainties around Brexit will have contributed to that, with concerns surrounding continued access to European investors. While there continue to be overriding reasons why many funds will still set up in the UK (not least on cost grounds), if a Luxembourg structure is proposed, it can benefit from UK advice.
The established Société en commandite simple (“SCS” or “Lux LP”) has replicated many UK limited partnership fund concepts for some time now and the newer Société en commandite speciale (“SCSp” or “Lux SLP”) has been described as “the twin brother of the Anglo Saxon LP”. While LUX LPs have legal personality, LUX SLPs do not; but both offer tax transparency and flexibility in the same way as conventional UK limited partnerships.
New Rules on Limited Partnership Formation and Anti Money Laundering Measures
On 10 December the government announced measures to impose new filing requirements on all limited partnerships (“LPs”) to make them more transparent and less susceptible to use for money laundering purposes.
LPs remain the most common structure for VC and PE funds in the UK. Last year new laws were introduced which required LPs in Scotland to report their beneficial owners and make their ownership structure more transparent.
Scottish LPs were seen as particularly at risk, in part due to them benefiting of them having their own legal personality. LPs in the rest of the UK don’t have separate legal personality and weren’t subject to the same measures but the new announcements will apply to all LPs and will include requirements that: -
The government is still reviewing whether to require beneficial ownership information from corporate partners that do not already hold a PSC register. It has, however, decided not to require LPs to prepare accounts and reports in line with limited companies.
If you would like to find out more then please contact Kenny Mumford at firstname.lastname@example.org or on 0131 226 8205. Kenny is a Partner at MBM Commercial and heads up the firm’s Corporate team and funds practice.