Case study - Limited partnership or private fund limited partnership?

[achramore]

Hi,
I am currently working on a research task for my interview at a law firm next week.

The scenario is that a private funds client in the States is setting up a new fund structure in a couple of different countries and is considering adding a limited partnership/private fund limited partnership.

Now I need to give a recommendation to the client advising them whether to set it up as a traditional LP or a PFLP. I also need to include the advantages of using each of these vehicles.

I understand that the new PFLP is much more flexible as it reduces the administrative burden and also can give the limited partners more rights.

However, the whitelist does not guarantee LPs any actual new powers over the fund - it is still up to the investors and managers to commercially agree on the inclusion of such power in the contract in the first place.

I would definitely recommend the client to go ahead with the Private fund LP and cannot really see any advantage that the LP has over the Private fund LP.

Am I missing out on an important point here?

 

[Jaysen]

Hi,
I am currently working on a research task for my interview at a law firm next week.

The scenario is that a private funds client in the States is setting up a new fund structure in a couple of different countries and is considering adding a limited partnership/private fund limited partnership.

Now I need to give a recommendation to the client advising them whether to set it up as a traditional LP or a PFLP. I also need to include the advantages of using each of these vehicles.

I understand that the new PFLP is much more flexible as it reduces the administrative burden and also can give the limited partners more rights.

However, the whitelist does not guarantee LPs any actual new powers over the fund - it is still up to the investors and managers to commercially agree on the inclusion of such power in the contract in the first place.

I would definitely recommend the client to go ahead with the Private fund LP and cannot really see any advantage that the LP has over the Private fund LP.

Am I missing out on an important point here?

I agree with you entirely, I can't see why you'd choose an LP over a PFLP if you were setting up a new fund. I can only see it being a slight burden if you were changing over from an LP, but that is not the case here.

One thing I'd flag up is your reference to the whitelist - I don't believe it's so much a case of guaranteeing LPs powers, it's more the fact that they won't be treated as GPs if they undertake those activities and thereby lose their limited liability.

 

[achramore]

@Jaysen Thanks for your response!!

The only real disadvantage I can find is that there is no restriction on a limited partner of a PFLP withdrawing capital contributed to that PFLP during the life of that PFLP.
In a traditional Limited partnership, limited partners can withdraw capital contributions contributed to the limited partnership but will be held liable for the debts of that limited partnership up to the amount of capital withdrawn.

Maybe at the time of the limited partner withdrawing his capital contributions, the private fund doesn't have the money to pay the contributions back to the limited partner.

Would you say that's a valid disadvantage?