The Luxembourg Limited Partnerships

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1 The Luxembourg Limited Partnerships Luxembourg recently modernized its legal regime applicable to Common Limited Partnerships and introduced a new vehicle, the Special Limited Partnership.

2 Partnership Companies (SCS / SCSp) in Luxembourg The bill introducing the EU Alternative Investment Fund Managers Directive ( AIFMD ) enhanced the corporate legal framework of Luxembourg Partnerships by: (i) improving the société en commandite simple regime (a common limited partnership or a SCS) regime and (ii) introducing a new form of limited partnership into Luxembourg law, a société en commandite spéciale (a special limited partnership or a SCSp). The new SCS and SCSp can be compared to the Anglo-Saxon Limited Partnerships, whose success mainly lies in the corporate flexibility and tax transparency it provides. The SCSs and SCSps will be particularly attractive to investors, in particular in the fields of private equity, hedge funds and the real estate funds industry. With some jurisdictions such as for example Poland, SCSp enhance the possibility for effective management of Polish assets with Polish Partnership and investment fund structure and as such shall be an effective alternative to the Polish S.C.A. (société en commandite par action), which is commonly used to manage Polish assets held by closed investment funds (Luxembourgish SIF SICAV or Polish FIZ). I. Legal characteristics of SCS / SCSp a. Set-up An SCS/SCSp is set up under the form of a limited partnership agreement ( LPA ) between one or more General Partners ( GP ) and one or more Limited Partners ( LP ). As a result, an SCS/SCSp may be set up with only two partners. Limited partners liability is in principle limited to the amount of their contribution to the SCSp. Contrary to a regular SCS, a SCSp has no legal personality distinct from that of its partners. The name of the partnership does not necessarily need to contain the name of the unlimited partner(s) anymore. The partnership can be set for a limited or unlimited duration. SCS/SCSp LPA may be concluded under the form of a private deed, and as such does not require the intervention of a notary. The SCS/SCSp LPA is immediately effective as of the date of the signature, without being delayed in any way by registration or publication requirements. Excerpts of the LPA are subject to publication and the SCS/SCSp must be registered at the Luxembourg trade and companies registry. The Law fully protects the anonymity of the LPs and their respective contributions which are not subject to publication. Confidentiality is therefore fully guaranteed.

3 b. Management In order to keep their limited liability, the limited partners cannot undertake any management acts which appear as such towards third parties. The Law contains an exhaustive list (a welcome change from the first draft of the Law, wherein the list was merely illustrative) of acts which can be performed by the limited partners without being considered as constituting management acts. Such list includes advice to and supervision of management, authorization given to management for acts falling outside their scope of competence as set out in the LPA, loans and other assistance provided to the partnership or its affiliates, exercise of the limited partners rights in such capacity. The Law further clarifies that a limited partner can act as manager or attorney of the manager(s) of the partnership (even while representing the partnership) without losing its limited liability as a limited partner provided that the capacity in which he acts is clearly indicated. The priority and security provisions contained in agreements between the limited partners and the partnership are not prejudiced by the limited partners capacity as partners of the partnership. c. SCS / SCSp Capital and interest Partnership interests can be issued against contributions in cash or in kind but also by contribution of industry (apport en industrie). Partnership interests can be represented by securities (notably by shares) according to the provisions of the SCS/SCSp LPA. The LPA can freely regulate the partnership interest s issuance, including to new partners. The LPA can authorize the management or the partners to cancel or repurchase some or all of the partnership interests of one or more partners, at their request or not. In case of capital account structuring, the capital account balance of each investor varies according to its contribution and withdrawal flows and according to the profits or losses of the SCS/SCSp which are allocated to the investor. SCS/SCSp regime does not prohibit the return of capital to the Limited Partners. Such return, either under the form of dividends or repayment of partnership interests, may not be recalled (subject to contrary provisions in the SCS / SCSp LPA). Both partnerships (SCS / SCSp) can issue debt securities. As a result of this flexibility, the SCS/SCSp regime of capital return allows for a wide range of funding, with a tailor-made equity-debt split best suited to the investor s business plan.

4 d. Other administration factors SCSp s lack of legal personality does not entail the traditional downside effects of such status, meaning that for instance the domicile of the SCSp is located at the place of its central administration, which shall be deemed to coincide with its Luxembourg registered office. Such derogation from standard principles ensures that the SCSp will be a Luxembourg based entity. Moreover, the registrations relating to assets which are contributed to the SCSp are made in the name of the SCSp and not in the name of the GP or the LP. Consequently, the rights on the assets of the SCSp are exclusively reserved to creditors whose claims have arisen in connection with the SCSp lifespan. Conversely, the SCSp s assets are not available to the personal creditors of the SCSp partners. Those creditors may only have recourse against the personal assets of their debtor, including its partnership interest held in the SCSp. The Law provides that any properties or assets of the SCSp will be registered directly in the name of the SCSp. The assets of the SCSp will only guarantee the debts and liabilities of the SCSp itself and not those of its partners. II. Tax characteristics of SCS / SCSp The income realized by SCS and SCSp is considered as commercial income only to the extent that the GP is a joint-stock company which holds at least a 5% interest in the SCS or in the SCSp. As long as the GP holds less than 5% interest in the SCS or in the SCSp, which is generally the case in hedge funds or Private Equity/Infrastructure structures, no taxation will arise in Luxembourg. In addition to avoiding any Luxembourg tax burden for the vehicle itself and its partners, the full tax transparency of the SCS and SCSp will also mean that investors would no longer be subject to tax reporting in Luxembourg, making the tax regime burden-free for the GPs and LPs. The unregulated SCSp, will not need to prepare annual accounts and will not have to keep its books in accordance with general commercial accounting rules. Accordingly, accounts of unregulated SCSp have only to be prepared in cases where this is provided in a SCS/SCSp LPA. Consequently, the contractual audit of such accounts will typically take place if a SCS/SCSp LPA explicitly requires it (which may be recommended for some cases as a proof that the central administration of SCSp is located in Luxembourg).

5 For any further information, please contact us at: Atdomco S.à.r.l. Fixed Line: Fax: , rue Baudouin L-1218 Luxembourg Disclaimer: This document is for information purposes only. The information and opinions it contains are not intended to provide tax and/or legal advice nor to be a substitute for reading Luxembourg legislation and official pronouncements dealing with limited partnership vehicles. Readers should not act on the basis of this publication without seeking specific professional advice. In particular, any information regarding the tax treatment of investments in a limited partnership vehicle for foreign tax purposes should be carefully analyzed with tax advisers of the countries concerned. Atdomco Sàrl cannot accept any responsibility for losses to any person acting or refraining from acting on any material in this document.