New transparency requirements for Scottish limited partnerships now in force

The Scottish Partnerships (Register of People with Significant Control) Regulations came into force on Monday 26 June and bring the approximately 30,000 Scottish limited partnerships into line with new EU-wide anti-money laundering rules. Partnerships which fail to disclose the identities of their beneficial owners within 28 days could face fines of up to £500 per day.

Commercial law expert Craig Connal QC of Pinsent Masons, the law firm behind Out-Law.com, said that the introduction of these new transparency requirements had been "inevitable".

"Scarcely a week passes without a lurid headline in the business press alleging that a Scottish limited partnership has been implicated in major fraud or money laundering, usually in Eastern Europe," he said. "It has also been asserted that these entities are actively marketed abroad as 'secrecy vehicles' capable of concealing transactions."

"There is always a risk of knee-jerk reaction against a form of business structure that has been in use for over 100 years. However, the legitimate uses, which no doubt work well in the background, are being drowned out by the cacophony of complaint. Given the world-wide interest in tackling the likes of money laundering, this was becoming an unwelcome spotlight on the Scottish system and the change was inevitable. What will be important now will be to monitor the impact," he said.

Unlike limited partnerships established elsewhere in the UK, those established in Scotland have their own legal 'personalities'. This means that they can hold assets, borrow money from banks and enter into contracts in their own right. Elsewhere in the UK, these activities must be done by the individuals or businesses that are members of the partnership.

The UK government has been concerned that this status means that Scottish limited partnerships can be used as a 'front' for unlawful activities, such as money laundering and tax evasion. Between 2011/12 and 2015/16 the number of limited partnerships registered in Scotland increased by 237%, while those registered elsewhere in the UK only increased by 43% over the same period.

In January, the UK government began a call for evidence into the law governing limited partnerships, with a particular focus on Scottish limited partnerships. Despite the differences in the legal framework between those registered in Scotland and those registered in England, Wales and Northern Ireland, limited partnerships are governed at a UK level by the 1907 Limited Partnership Act.

The change in the law will require Scottish limited partnerships to maintain a register of persons with significant control (PSCs) over them, and to report this information to Companies House where it will be available for public inspection. The government has produced some guidance (17-page / 498KB PDF) alongside the regulations to help Scottish limited companies comply with the requirements. UK companies and limited liability partnerships (LLPs) are already required to maintain a PSC register.

Scottish secretary David Mundell said that the change in the law was "a sign of the UK government's commitment to transparency around Scottish limited partnerships".

"Campaign groups and media activity have highlighted growing concerns that [Scottish limited partnerships] had the potential to be used for criminal activity, and by introducing stronger deterrents the UK government is encouraging transparency," he said.