BEIS claims the call for evidence will help inform what further action, if any, is required to prevent limited partnerships being used as a front for unlawful activities such as money laundering and tax evasion, while also ensuring that the limited partnership business model continues to provide an efficient and flexible vehicle for legitimate business use.

Unlike other limited partnerships, SLPs possesses a separate legal personality, allowing them to own assets, enter into contracts, sue or be sued, own property, borrow money and issue certain kinds of security. Typically, limited partnerships are not treated as separate legal personalities and as such are unable to exercise ownership or agency.

Much like a traditional limited partnership, SLPs have two types of partner: general partners who are liable for the debts and obligations of the limited partnership and limited partners whose liability is limited to the extent of their capital contributions. Under SLP structures, there is a legal requirement that limited partners may not participate in management of the partnership. In conventional partnerships, all partners are jointly and severally liable for all the partnership debts.

This makes SLPs ideal vehicles for multi-party investor structures where management and control rests with the general partner.

For tax purposes, SLPs are taxed as though they do not have a separate legal personality. No tax is payable by the SLP itself. Instead, the tax authorities look through the partnership structure and partners are taxed on their share of partnership income and gains arrived at in line with their profit-sharing ratios. Provided the partnership is not trading in the UK, however, no UK tax will be payable by non-UK resident partners.

SLPs were introduced by the UK government under Liberal Chancellor Herbert Asquith in Limited Partnerships Act 1907. Despite their name, the regulation, operation and dissolution of SLPs remain with Westminster.

In August 2016, the government published proposals to clarify the tax treatment of partnerships, although Scottish limited partnerships did not form part of the plans.

According to BEIS, between 2011 to 2012 and 2015 to 2016, the number of limited partnerships registered in Scotland increased by 237%. Registrations for limited partnerships registered in England, Wales and Northern Ireland for the same period was 42%.

One expert told CCH Daily that Scottish limited partnerships have for approximately 40 years been used by private equity houses as the vehicle through which the PE executives hold their carried interest. The advantage is administrative: the Scottish limited partnership, with its separate legal personality, can be a partner in the main limited partnership fund run by the private equity house, and through that mechanism the executives can effectively have their own interest or share in the main limited partnership fund.

CCH Daily found that Scottish limited partnerships can be established by UK residents for as little as £92, while paying £165.99 gets clients an address in Edinburgh, the government mail forwarding; and the certificate of the registered office address.

Business Minister Margot James said: ‘I am concerned about recent reports relating to the use of limited partnerships, suggesting that some are being used for criminal activity. This undermines the many legitimate uses this form of incorporation can give.

‘The UK government is fully committed to stamping out criminal activity, so I have launched this call for evidence and would encourage businesses and other interested parties to respond with their views on whether the rules and scrutiny around limited partnerships need to be tightened up to prevent them being exploited.’