Jersey Limited Partnerships
In 2001 Jersey introduced two new types of limited partnership – Separate Limited Partnerships (“SLP”) and Incorporated Limited Partnerships (“ILP”). This was in addition to the ‘standard’ limited partnership which has been available in Jersey since 1994.
In short, a limited partnership is a partnership made between one or more general partners and one or more other persons who are limited partners. The general partner tends to be responsible for the management of the limited partnership and is generally a limited liability company. Limited partners are the investors who do not participate in the management of the limited partnership.
The two new Jersey laws relating to SLP and ILP are based on the existing 1994 law and draw on the law relating to the popular Scottish limited partnership.
The introduction of the SLP and the ILP has been welcomed by Jersey’s private client and investment funds industries and will help to maintain Jersey’s international position as a flexible and innovative jurisdiction with which to do business.
Jersey Limited Partnerships are regularly used for collective investment funds, private investment structures and family estate planning. They have also proved popular for structures and transactions where tax transparency is important (however, please see Key Features of an ILP below).
3. Common Features of Jersey Limited Partnerships
Any general partner has unlimited liability for the debts of the partnership whilst the limited partners are be protected by limited liability provided that they have not participated in the management of the partnership;
- It must consist of one or more general partners and one or more limited partners;
- Confidentiality: neither the names and addresses of the limited partners nor the partnership agreement are matters of public record;
- There is no limit on the number of limited partners;
- A limited partner is permitted to assign its interest (subject to the terms of the partnership agreement);
- A limited partner may contribute cash or property;
- A limited partnership may be established for a specific period or for an unlimited period of time;
- There are no requirements for an audit, filing of an annual return or annual fee; and
- Registration and COBO consent will be required, both of which are standard applications.
4. Key Features of an SLP
- SLPs have separate legal personality but are not be a body corporate;
- SLPs are able to contract in and sue and be sued in its own name;
- SLPs are not subject to the principles and rules relating to companies;
- Like a traditional limited partnership, SLPs are tax transparent;
- Because an SLP has a distinct personality it is possible to obtain judgement against either the SLP or the general partner;
- Legal proceedings may be brought in the name of the SLP or the general partner; and
- It is possible to hold property in the name of either the SLP or the general partner.
5. Key Features of an ILP
- An ILP has separate legal personality (like an SLP) and is a body corporate (unlike an SLP);
- Like a company, SLPs have perpetual succession;
- Like a director, a general partner must ‘act honestly and in good faith’ and exercise ‘care, diligence and skill’;
- The general partner is regarded as an ‘agent’ of the limited partnership and as such it is only be liable after the partnership has failed to satisfy the debt;
- Like shareholders, the partners of an ILP can ratify a breach by a general partner provided all partners authorise and the ILP is able to discharge its liabilities as they fall due;
- An SLP may own property in its own name;
- An SLP may contract, sue and be sued in its own name; and
- Due to its incorporated status, an ILP is capable of committing a criminal offence.
Jersey Limited Liability Partnerships
Legislation has recently been passed by the States of Jersey to amend the Limited Liability Partnerships (Jersey) Law 1997 (the Law). A Jersey Limited Liability Partnership (LLP) is a legal person distinct from its partners which can own property, sue and be sued in its own name. Each of its partners is obliged to contribute effort and skill to the business of the LLP as agents of the partnership but not of each other.
2. Previous Financial Provision Obligations
The Law previously required a Jersey LLP to maintain “financial provision” arrangements with one or more banks or insurance companies in Jersey for the life of the structure in the form of a £5 million bond. The bond would be paid to the person responsible for winding up the affairs of the LLP to enable them to settle any liabilities of the LLP at the time of its dissolution. The obligation to ensure LLPs made "financial provision" for potential creditors included a restriction to prevent the LLP assigning, charging or otherwise encumbering the bond. The onerous financial requirements proved an insurmountable barrier to LLPs being established in Jersey.
3. What are the amendments?
From 17 January 2012 certain amendments have been made to the Law to increase the flexibility of Jersey LLPs by removing the requirement for the £5 million bond to be maintained. The Limited Liability Partnerships (Amendment of Law) (Jersey) Regulations 2013 (the Regulations) seek to ensure that creditors dealing with LLPs remain protected by introducing a requirement for a solvency statement to be made by the LLP in the 12 month period preceding any withdrawal of partnership property.
4. Specified Solvency Statement
The Regulations introduce the concept of a “specified solvency statement” to be made by the LLP before any partnership property may be withdrawn from the LLP. The solvency statement requires the LLP to state that, in its opinion, having regard to-
(a) the prospects of the LLP and the intentions of the partners with respect to the management of the LLP's business; and
(b) the amount and character of the financial resources that will be available to the LLP, the LLP will be able to –
(i) continue to carry on business, and
(ii) discharge its liability as they fall due,
for the period of 12 months immediately following the date of the specified solvency statement or until the dissolution of the LLP, whichever first occurs.
The solvency statement can be made by the LLP at any time. If a partner or former partner withdraws any property of the LLP at any time when either the LLP has not made a specified solvency statement in the 12 months immediately preceding the withdrawal, or if a specified solvency statement is made without the LLP having reasonable grounds for the opinion in that statement, the partner or former partner is liable to return the property to the LLP.
Pursuant to the changes to the Law as a result of the Regulations, the liability to return partnership property to the LLP will not apply if the Royal Court of Jersey declares that it is satisfied that, at the time of the withdrawal, the LLP was solvent, that it has subsequently made a specified solvency statement and that it would be contrary to the interests of justice for the partner or former partner to remain liable.
5. What is the effect of the amendments?
The amendments to the Law will enhance the flexibility of Jersey LLPs and will encourage their use for investment structuring purposes (as has been the case for UK LLPs). The proposed amendments will enable Jersey LLPs to be used as an alternative structure to a UK LLP for the benefit of individuals and corporates. It is thought by some UK advisors that a Jersey LLP with no corporate partners might prove an attractive vehicle for acquiring and holding UK residential property with a value over £2m following recent UK tax changes which impact on so called "non natural persons" acquiring and holding such property.
6. Additional Requirements
A Jersey LLP will need to have a registered office in Jersey and must comply with the following requirements:
- the designated partner of the LLP must deliver a statement to the Jersey Registrar of Companies stating whether or not any specified solvency statement has been made by the LLP on or after 1 March of the previous year and must deliver any such specified solvency statement to the Registrar; and
- a copy of any specified solvency statement sent to the Registrar must be kept at the registered office of the LLP for 10 years and the LLP must take reasonable precautions to prevent its loss, destruction or falsification.