Limited Partnership Reform in the United Kingdom: A Competitive, Venture Capital Oriented Business Form

Abstract:     
This paper evaluates the primary legal and financial mechanisms that help support the development of a venture capital market. Specifically, we argue that emulating the organizational and contractual pattern of the US venture capital market could enhance the development of the European venture capital market. We first show that the modernization of the 'venerable' limited partnership form, based on US experiences, offers substantial contracting benefits for investors and is crucial to the operation of a mature venture capital market. We then argue that the emergence of more efficient limited partnership structures may arise as a consequence of the competition between European states. We argue that the United Kingdom, which has recently embarked on general and limited partnership law reform, could, in light of the competitive lawmaking environment that the ECJ has opened up, be in the best position to enter the competition within the EU. It then explores the prominent features of the UK special Limited Partnership statute, which makes it possible for venture capitalists to organize their contractual relations that are best suited to the characteristics of the venture capital market. Finally, our analysis provides an understanding of the competitive forces that shape the ongoing reforms of limited partnership law and related business forms in Europe.

Number of Pages in PDF File: 32

Keywords: Venture capital, venture capital market, innovative companies, limited partnership, public policy

JEL Classification: K2

working papers series