One of the primary considerations for any fund promoter is the choice of corporate structure for the collective investment scheme which will be used to raise capital and eventually make investments. The structure would need to tick several boxes particularly in relation to investor rights, control, voting, the management structure, investment period and last but not least taxation. The limited partnership structure, which is available in Malta, ticks all these boxes. Limited partnerships were originally introduced back in 1962 through the Commercial Partnerships Ordinance; however, it was only in 2003 that the legislator felt the need to cater for limited partnerships which have collective investment as their main or sole objective. The changes brought about in 2003 were welcome but not sufficiently detailed in order to cater for a structure which has developed certain legal complexities over the years, especially in Anglo-Saxon jurisdictions.
The need for more bespoke corporate regulation for limited partnerships was partly addressed when a whole new schedule – the Tenth Schedule – was added to the Maltese Companies Act which catered exclusively for investment funds set up as limited partnerships. The Tenth Schedule was reviewed further and refined, also with the assistance of international legal consultants in 2014. These latest changes placed Malta on the proverbial map as a domicile where limited partnerships can be incorporated with the flexibilities normally encountered by Anglo-Saxon fund promoters which have been at the forefront of using limited partnerships as collective vehicles for private equity and venture capital investments.
Main features of the Maltese limited partnership
The Maltese limited partnership has separate legal personality from that of its partners and can contract in its own name albeit represented by the general partner. Whilst the limited partnership itself would be subject to licensing by the Malta Financial Services Authority in view of the fact that it would qualify as a collective investment scheme (all types and forms of funds are subject to licensing barring a handful of specific exceptions), the general partner would not be regulated in its own right unless it is providing management services to the limited partnership. The general partner is typically set up as a Maltese private limited liability company and this further enhances the substance of the fund in Malta. Nevertheless, the legislation allows the general partner to be incorporated anywhere else.
The LP can be either divided into shares or else can issue partnership interests. In both cases, these would qualify as units for the purposes of defining an investor’s ownership interest in the partnership. As in any other partnership structure, the liability of the limited partners is limited to the investments which they make whereas that of the general partner is unlimited.
The acts of general management and administration of the partnership would be vested in the general partner. The GP would act in the name and on behalf of the partnership in the delegation of specific functions to fund managers, administrators and depositaries, or else fulfil the investment management function itself and at times the administration function too. However any limited partner can be provided with a specific power of attorney to perform certain acts on behalf of the partnership. Although the GP is responsible for the partnership’s general management and representation, the limited partners can still be given certain veto rights and can also form part of advisory boards or committees which would provide them with a level of participation in the operations of the partnership.
The GP is also bound by certain fiduciary obligations towards the partnership and would require the express approval of the other partners (normally catered for in the deed of partnership) to carry on business on its own account or on account of others in competition with the partnership, act as general partner or director of another entity competing with the partnership, or deal with the partnership’s property in any way other than as permitted by the deed of partnership.
The Tenth Schedule renders the rights of limited partners subject to what is stated in the deed of partnership. However, it provides limited partners with basic rights of inspection of books of account and records, albeit such rights can be curtailed further in the deed. Limited partnerships can also issue fractional shares and can accept non-cash contributions from investors. These aspects would normally be regulated by the deed of partnership and the offering memorandum.
Multi-fund and multi-class
It is also possible for a limited partnership to have segregated sub-funds which would have separate investment objectives where the assets and liabilities of each sub-fund would constitute a separate patrimony, although the sub-fund would not have separate legal personality which would remain vested in the limited partnership as a whole. On the other hand, a partnership which is issuing shares can also have different classes of shares which are all exposed to the same pool of assets, in which case there is no segregation of liability between one class of shares and another.
Fixed or variable capital partnerships
Partnerships are allowed to have either fixed capital or variable capital. This is a reflection of other corporate options available under Maltese company law in the form of the SICAV (variable capital company) and the investment company (fixed capital company). These features have been incorporated within the limited partnership law in order to provide partnerships with options on their capital structure. One would expect fixed capital partnerships to be preferred over variable capital ones if there is no redemption mechanism embedded in the structure and hence it is investors’ expectation to remain invested for a certain period of time; however both are possible. In fact the legislation caters for both open ended and closed ended partnership structures.
Corporate filings and reporting
All corporate filings relating to the limited partnership would be submitted with the Malta Registrar of Companies, which is the public depositary of all corporate documents relating to the partnership. The legislator recognised the importance of retaining a certain level of confidentiality, especially in relation to the commercial terms negotiated with investors. In fact, the filing of the deed of partnership is not required and, instead, the partnership can file a partnership registration document containing basic details such as the name and residence of the general partner, the name, registered office and objects of the limited partnership, and indicating whether the capital of the partnership is variable capital or fixed capital. Limited partnerships are also bound to file audited financial statements which are produced in accordance with International Financial Reporting Standards. An important point to note is that the identity of limited partners is not in the public domain and the corporate filings are not required to identify the limited partners, but only the general partner/s.
Dissolution and Winding Up
The law provides extensive detail on the dissolution of limited partnerships and the various ways in which this can be achieved. The provisions on dissolution and winding up generally reflect the provisions which apply to companies such as those relating to dissolution by the court, or by creditors of the partnership, the manner in which the dissolution is conducted and the circumstances in which a partnership can be dissolved.
We are of the view that the Maltese limited partnership provides all the elements of a robust corporate structure within a regulated framework enjoying all the hallmarks of tax transparency, where required, confidentiality where this counts while ensuring full transparency towards investors and the regulator. This structure has been sparsely used over the years, however, the improvements made in 2014 have placed limited partnerships on a par with the SICAV, which remains the most widely used corporate vehicle in Malta. We expect the use of limited partnerships in Malta to increase in the short to medium term in view of the initiatives being taken by the European Commission on the introduction of harmonised rules for venture capital funds and long term investment funds, where limited partnership structures could be well suited for such strategies.