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It's a girl!

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11 September 2015

In a few days the extensive capital investment family will welcome a new member...

The birth is underway as this column is being written: a long, difficult gestation period has finally required the use of forceps in the form (once again) of Article 49.3.

The birth was announced by the President of France in September 2014.

The Société de Libre Partenariat ("SLP" or free partnership firm) has been conceived by a process of artificial insemination under the so-called "Macron" law, thanks to an amendment in special committee. After much conjecture (just as our cross-Channel neighbours had enjoyed betting on the name of their future princess), speculation began on the surprise the government had in store for us.

Numerous well-wishers have peered into the cradle to make sure that this latest addition to the family enjoys the best possible start to life. The AMF (the French financial markets authority), the AFIC (the French venture capital association), parliamentary deputies, the government and consultancy firms have all been striving to make sure this project sees the light of day.

The longed-for arrival of the SLP sees the birth of a baby whose role it is to increase the attractiveness of the Paris market, offering investors a vehicle capable of competing with the UK's limited partnerships or Luxembourg's sociétés en commandite spéciale (special limited partnerships).

The parents can truly be proud of themselves, as the SLP seems to have the necessary qualities to reinvigorate fund-raising operations in France while restoring faith in French asset management.

Status of the new vehicle

Form
  • Société en commandite simple (simple limited partnership).
  • Has legal personality.

Easily identifiable abroadas it has a Kbis (company registration form).

Articles of association

  • Article L.214-24 of Monetary and Financial Code.
  • Alternative Investment Fund ("AIF") under the category of Specialised Professional Funds ("SPF"): SLPs must thus have a statutory auditor and a depositary, and be subject to inspection by a Head of Compliance and Internal Control.

The SLP can also have sub-funds that are separate for legal and accounting purposes.

Contract

Principle of contractual freedom contained in articles of association.

 

Operation

  • Flexible, as the SLP is free of most of the constraints imposed by French company law.
  • Obligation to hold a meeting of partners for various decisions relating to the life of the company.

No publication of accounts required.

Only an extract from the articles of association needs be published in order to maintain the confidentiality of agreements between limited partners and the management company.

The provisions of Book IV of the Commercial Code are not applicable.

Governance

Two types of partner:

  • One or more general partners (GP): personal and joint & several liability.
  • Limited partners (LPs): status reserved to professional investors whose liability is limited to the extent of their contributions.

Model inspired by UK/US limited partnerships.

Investment rules

  • No specific constraints in terms of quotas or ratios.
  • Possibility of opting for the fiscal investment quota.

Eligible assets in the portfolio may include not only all types of financial instruments but also goods, rights representing financial investments and receivables without limitation.

Asset management

  • Internal (self-managed vehicle).
  • Delegated to an approved and regulated portfolio management company ("French SGP").

The SGP may be French (with or without AIFLM approval) or from the EU (with AMF approval after being AIFM approved).

Taxation

  • Fiscal transparency, thus avoiding double taxation situations.
  • Opportunity to benefit from the exemption regime as per Article 163 quinquies B of the General Tax Code (GTC).
  • Issuance of carried interest shares possible (regime as per Article 150-0 A of the GTC)

 

The SLP is likely to take its first steps during the first half 2016.

The future looks promising. If we look at our neighbours Luxembourg, over 250 sociétés en commandite simple have already seen the light of day two years after their launch.

Will the SLP sound the death knell for the FPCI (fonds professionnel de capital investissement)?

Private equity management companies for the moment remain sceptical.

Many of them attending the conference held on 5 June last by the AFIC Academy wondered what were the real advantages of the SLP for French private equity as compared to FPCI investment funds.

There are four fundamental differences, as shown in the comparative table below:

1 - Legal framework

A vehicle with legal personality will offer an undeniable advantage in that it is visible to all: but opting for company form also entails far more legal constraints than with a fund. Just as with the SPPICAV form, a full meeting of shareholders is required annually for instance.

2 - Governance

An SLP permits investors (to a certain extent) to play more of a role in the management of the company.

While desirable from the point of view of French and foreign institutional investors, this model of governance may not be suitable for small investors who perhaps wish to only take a back seat.

Moreover, the need for a general partner who is both personally and jointly & severally responsible may represent an insurmountable barrier for the smaller management companies.

3 - Investment strategy

Rather more anecdotally - especially as regards capital investment, although the SLP must meet the tax quota if it wishes to ensure that some of its investors can benefit from the tax exemption provided for by Article 163 quinquies B of the GTC - it can enjoy an investment strategy free of any restraint.

4 - Fiscal transparency

For French management companies wishing to market vehicles to foreign institutional investors, fiscal transparency is a major advantage that may ultimately consign the dear old FPCI to oblivion!

FPCI vs. SLP - and the winner is...

The growth of this new-born should, in the opinion of one French management company, be carefully watched!

Opinion of LBO France

The attractiveness of the proposed funds to such a wide spectrum of international investors is a crucial issue for LBO France.

Attractiveness combined with simplicity and pragmatism are three major assets of the Société de Libre Partenariat, a new vehicle that has yet to unveil all of its features. With the legislative aspects complete, it is now the turn of the implementing decrees to appear - a critical factor in the success of the SLP.

This new arrival on the French asset management scene has a promising heritage that has given rise to great expectations:

  1. Clear contractual freedom and potentially flexible governance that are intended to go hand-in-hand with less restrictive legal formalities;
  2. Taxation aligned with international standards - at least in theory - until such time as local tax administrations take a view.

The adoption of the SLP by LBO France could thus present a medium-term option.

If there is, however, one last wish we might make at the birth of the SLP, it is for greater efficiency in the AIFM marketing passport regime, thus permitting the SLP to fully benefit both from its own advantages and the AIFM label.


NOT LEGAL ADVICE. Information made available on this website in any form is for information purposes only. It is not, and should not be taken as, legal advice. You should not rely on, or take or fail to take any action based upon this information. Never disregard professional legal advice or delay in seeking legal advice because of something you have read on this website. Gowling WLG professionals will be pleased to discuss resolutions to specific legal concerns you may have.

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