Many LLPs, utilized as film fund vehicles will, unless the members have had the responsibility for the 'day to day' running of the LLP (which recent case law states must be actual involvement as opposed to the right to be consulted over the more material matters of the business of the LLP), constitute an unregulated 'collective investment scheme' (CIS) for purposes of the Financial Services and Markets Acts 2000 (FSMA) and the Financial Services Authority (FSA).
The implications of an LLP being a CIS are that the LLP will be required to appoint an FSA-authorized 'operator' to the scheme to undertake the regulated activities of the scheme, such as admitting new members to the Partnership. Whilst the sponsor of any film partnership need not in themselves be a regulated person, care must be taken to ensure that anything that does constitute a regulated activity under FSMA is undertaken by the operator or another third party with the requisite level of authorization and permissions granted by the FSA.
As an unregulated CIS, investments in the LLP may not be promoted to the general public and may only be promoted to certain categories of investor, who are able to invest in the fund under the financial services legislation, e.g., investors who have been certified as being sufficiently sophisticated to understand the risks involved in such an investment. In addition, as an unregulated scheme, compensation under the FSA's compensation scheme is unlikely to be available.
The LLP fund will usually be promoted using a document called an Information Memorandum, which sets out the parties involved in the fund, the investment strategy of the LLP, the costs of the LLP and a statement of the likely taxation consequences and returns of an investment in the fund. This, together with the members' agreement and any agreements with any promoters and operators of the fund, will constitute the 'scheme documentation'.
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