Legal Alert – Proposed Amendments to the Partnerships Act
The Finnish Government has issued a government bill proposing amendments to the Partnerships Act (Fi: laki avoimesta yhtiöstä ja kommandiittiyhtiöstä) which are intended to take effect in the beginning of 2016. The main points of the proposition include provisions relating to the termination of partnerships and redemption of partnership interests as well as provisions relating to the formation of partnerships. The amendments may have some implications for the Finnish private equity industry as Finnish funds are typically formed as limited partnerships, and they should increase legal certainty at least to some extent.
Currently, the Partnerships Act includes a compelling provision pursuant to which a partnership agreement of a partnership with a term exceeding 10 years may be terminated by a partner after being a partner for 10 years. The proposition provides that where the general partner of the partnership is a legal entity (as in virtually all private equity funds) the partners may agree otherwise. Private equity funds formed as limited partnerships typically have a term of at least 10 years with a possibility of extension by several years. Funds of funds investing in other funds have even longer terms. The amendment should simplify the terms and conditions of the funds to some extent as there will be no need to prepare for a possibility of a partner terminating the partnership agreement (and the partnership) based on the lapse of time.
Furthermore, according to the proposal the partners may in the future agree on the procedure of the liquidation of the partnership as well as redemptions of partnership interests beforehand with a binding effect upon the creditors of the partners. This may result in some changes to the current practice where these matters are mostly addressed in a non-public “fund agreement” or similar – and not in a substantially shorter partnership agreement which is publicly registered.
The proposal introduces provisions requiring registration of a partnership with the Trade Register in order for the partnership to be formed. Currently, a partnership (as a separate legal entity) is formed by entering into a partnership agreement whereas the registration has only a declarative purpose. Accordingly, there will also be provisions regulating actions with an unregistered partnership which, according to the proposal, will not have legal capacity. Likewise, amending a partnership agreement requires registration in order for it to become effective. There will also be further minimum requirements for registered partnership agreements which on the other hand do not seem to deviate from the current de facto requirements set out by the Trade Register legislation.