"The Separate Limited Partnerships (Jersey) Law 2011 (the "SLP Law") came into force on 20 April 2011 and the Incorporated Limited Partnerships (Jersey) Law 2011 (the "ILP Law") came into force on 26 May 2011. SLPs and ILPs complement the range of vehicles that may be used in Jersey. This gives fund promoters more options for the creation of their Jersey investment funds and carried interest vehicles."
"For the purpose of Jersey tax laws, ILPs are treated in the same way as SLPs and traditional Jersey limited partnerships. They are not assessable to Jersey income tax."
"Three separate statutes govern SLPs, ILPs and traditional Jersey limited partnerships. There is no ability to convert or re-characterise one type of partnership into another."

Jersey separate and incorporated limited partnerships

09 Oct 2019

Under Jersey law, limited partnerships can be established with separate legal personality or full body corporate status. Such partnerships are known, respectively, as separate limited partnerships ("SLPs") and incorporated limited partnerships ("ILPs").

Separate laws apply to each type of partnership. The laws run in parallel with the Limited Partnerships (Jersey) Law 1994 (the "LP Law"), under which traditional Jersey limited partnerships are established. So, three distinct limited partnership types may be used in Jersey. Traditional Jersey limited partnerships have no separate legal personality or perpetual succession (for more information on traditional limited partnerships, please see our briefing).

The Separate Limited Partnerships (Jersey) Law 2011 (the "SLP Law") came into force on 20 April 2011 and the Incorporated Limited Partnerships (Jersey) Law 2011 (the "ILP Law") came into force on 26 May 2011.  SLPs and ILPs complement the range of vehicles that may be used in Jersey. This gives fund promoters more options for the creation of their Jersey investment funds and carried interest vehicles. They may also find use in a wide range of corporate and private client structures.

The key features of SLPs and ILPs are set out below, along with a section setting out their potential advantages.

Separate Limited Partnerships
Basic structure: Apart from certain key differences set out below, the basic structure of an SLP is very like the traditional Jersey limited partnership. An SLP must have at least one general partner and one limited partner. An SLP must have a partnership agreement. This is not publicly available. An SLP may be formed for any lawful purpose. A declaration must be filed with the Jersey Registrar of Limited Partnerships to establish the SLP. These are broadly the same requirements as for traditional Jersey limited partnerships. It is just a matter for the partners to decide to register under the LP Law or the SLP Law. This depends on whether they wish the limited partnership to have its own (separate) legal personality or not.

Separate legal personality: An SLP is a "legal person". It is not a body corporate. It can transact, hold rights, assume obligations and sue and be sued either in its own name or in the name of its general partner. SLPs have unlimited capacity under the SLP Law. The ultra vires rule does not apply. An SLP can do anything which a natural person can do.

Tax treatment: For the purpose of Jersey tax laws, SLPs are treated in the same way as traditional Jersey limited partnerships. They are not assessable to Jersey income tax. As a result of investing in an SLP, non-Jersey resident partners will not be liable to Jersey income tax other than in respect of certain Jersey source income. This does not include interest on Jersey bank deposits. This broadly means that no Jersey tax will be payable by non-Jersey resident limited partners. Whilst tax advice should always be sought, we understand that SLPs are treated as transparent for the purpose of UK income tax, capital gains tax, corporation tax and stamp duty land tax.

Right to profits: The SLP Law provides that (unlike in the case of a company and its shareholders) the right to profits vests in the limited partners as soon as those profits are made. This applies whether or not such profits are paid to the limited partners. This means that the SLP structure will not stop the flow of profits to the limited partners' accounts, even if those profits are not paid to the limited partners straight away.

SLP liabilities: As is the case for traditional Jersey limited partnerships, the general partner of an SLP has unlimited personal liability for the debts and obligations of the partnership to the extent that they cannot be met out of the partnership's assets. In practice, the general partner is often structured as a company or other entity having limited liability.

Partnership property: The SLP can hold assets in its own name. But, just like a traditional Jersey limited partnership, an SLP can hold assets in the name of its general partner if this is necessary for structuring or other purposes. The SLP Law states that, where property is held in the name of one or more general partners, it will be held for the benefit of the partners in line with the partnership agreement. This ensures that the introduction of the concept of separate legal personality for the SLP does not cast doubt on the ownership of the partnership assets. 

Incorporated Limited Partnerships
Basic structure: ILPs are an innovative addition to the range of partnership vehicles that may be used in Jersey. The ILP Law is also largely based on the LP Law. It provides that an ILP must have at least one general partner and one limited partner. As in the case of SLPs, ILPs can be established for "any lawful purpose". Each general partner of the ILP must file a declaration with the Jersey Registrar of Limited Partnerships under the ILP law for the ILP to be validly incorporated. An ILP must have a partnership agreement. This is not a publicly available document.

ILP as a body corporate: Like SLPs, ILPs also have separate legal personality. ILPs can hold assets in their own name. They do not need to hold assets in the name of their general partner. But it is possible for the assets of an ILP to be held by a nominee. An ILP can sue and be sued in its own name. The key difference is that, in contrast with traditional Jersey limited partnerships and SLPs, ILPs are incorporated and have perpetual succession. They are bodies corporate akin to a limited company and completely separate from their partners. Limited partners may freely assign their interests in the ILP, subject to the terms of the partnership agreement. The ILP may only be dissolved in accordance with the ILP Law and regulations made under it. The winding up and insolvency procedures of an ILP are similar to those that apply to Jersey limited companies. An ILP is not dissolved on the death, dissolution, bankruptcy or withdrawal from the ILP of the general or limited partners.

Tax treatment: For the purpose of Jersey tax laws, ILPs are treated in the same way as SLPs and traditional Jersey limited partnerships. They are not assessable to Jersey income tax. As a result of investing in an ILP, non-Jersey resident partners will not be liable to Jersey income tax other than in respect of certain Jersey source income. This does not include interest on Jersey bank deposits. This broadly means that no Jersey tax will be payable by non-Jersey resident limited partners. Whilst tax advice should always be sought, we understand that ILPs are treated as transparent for the purpose of UK income tax, corporation tax and stamp duty land tax. But, in contrast to SLPs and traditional Jersey limited partnerships, opaque for the purpose of UK capital gains tax.

Right to profits: As under the SLP Law, in relation to which, please see above.

ILP liabilities: As with traditional Jersey limited partnerships and SLPs, the general partner is ultimately responsible for the debts and liabilities of the ILP. Under the ILP Law, each general partner is said to be personally liable to make good any default by the ILP to discharge its debts and obligations.

General partner as agent: The general partner of an ILP will act as an agent of the ILP. It owes the ILP statutory fiduciary duties. These are similar to those owed by directors to Jersey companies. The general partner of an ILP must act in the best interests of the ILP. The breach by a general partner of these fiduciary duties can be ratified by all the partners of the ILP, subject to a solvency test.

Potential advantages of SLPs and ILPs
Fund structuring: Limited partnerships with separate legal personality can be attractive in structuring funds of funds and feeder funds where a limited partnership invests in underlying funds which are also structured as limited partnerships. In this case, we understand that certain jurisdictions which consider limited partnerships as transparent entities require that the public register of limited partners contains details of the limited partners in the investing fund or feeder fund. When this is an issue for structuring purposes, the use of an SLP or an ILP as the investing limited partnership or feeder fund may deal with the issue on the basis that they have legal personality and may be seen as a single investor in the underlying fund.

Modern statute: There are some potential advantages in opting for a Jersey SLP over its Scottish counterpart. One advantage is that a Jersey SLP may be set up for "any lawful purpose", whilst a Scottish limited partnership must be "between persons carrying on business with a view to profit". In addition, the SLP Law states, without any geographical or other qualification, that an SLP has legal personality. On the other hand, the Partnership Act of 1890 provides that "In Scotland a firm is a legal person distinct from the partners of which it is composed...". This leaves open the possibility that a Scottish limited partnership may not be treated as having legal personality outside Scotland.

No ability to convert: Three separate statutes govern SLPs, ILPs and traditional Jersey limited partnerships. There is no ability to convert or re-characterise one type of partnership into another. This model provides certainty for promoters and investors. It should also avoid tax issues that can arise for investors in some jurisdictions where there is an ability under the relevant offshore legislation to convert from one type of partnership into another.

No FSA operator: There is no Jersey requirement for an FSA–registered operator or equivalent to be appointed in respect of an SLP or an ILP. 

No audit: There is no requirement under the SLP Law or the ILP Law for an auditor to be appointed to audit the partnership accounts.

Ranking of limited partners' loans: Limited partners of both SLPs and ILPs benefit from express statutory provisions to the effect that loans made to the SLP or ILP by limited partners will rank equally with those made by third party creditors.

Limited liability: As is the case under the LP Law, both the SLP Law and the ILP Law contain specific provisions which provide that a limited partner will not be liable for the obligations of the SLP or ILP, as the case may be, unless such limited partner takes part in the management of the SLP or ILP. The SLP and ILP Laws each contain a number of "safe harbours" in the form of actions which may be taken by a limited partner which will not be regarded as taking part in the management of the partnership.

Flexibility: There are no rigid requirements in relation to the content of the partnership agreement governing an ILP or an SLP.

Registration: Details of limited partners and their capital contribution to the SLP or ILP do not need to be included in the statutory declaration filed with the Jersey Registrar of Limited Partnerships. The partnership agreement does not need to be filed.

Body corporate status: International law is clear that the status of a body corporate is governed by the jurisdiction in which it is incorporated. An ILP may be advantageous for investors resident in civil law jurisdictions or jurisdictions which are not familiar with the concept of, or which may not recognise the limited liability afforded by, a foreign limited partnership.

The table below shows a summary of the similarities and differences between traditional Jersey limited partnerships, SLPs and ILPs. 

Feature

"Traditional" Limited Partnerships

Separate Limited Partnerships

Incorporated Limited Partnerships

Separate legal personality

No

Yes

Yes

Body corporate

No

No

Yes

Unlimited capacity as a legal person

No

Yes

Yes

Dissolution formalities

Delivery of a statement of dissolution to the registrar

Delivery of a statement of dissolution to the registrar

Must follow the procedure set out in the Regulations

May hold property in its own name

No

Yes

Yes

Relevant law expressly provides that the general partner is an agent of the partnership

No

No

Yes

Unlimited liability of the general partner

Yes, after exhausting partnership assets

Yes, after exhausting partnership assets

Yes, but only after the partnership itself defaults

Limited liability of the limited partners

Yes

Yes

Yes

Name requirements

Must end: "Limited Partnership" or "L.P." or "LP"

Must end: "Separate Limited Partnership" or "S.L.P." or "SLP"

Must end: "Incorporated Limited Partnership" or "I.L.P." or "ILP" or "Inc. L.P." or "Inc LP"

Perpetual succession

No

No

Yes

Must have at least one limited partner and one general partner

Yes

Yes

Yes

Can limited partners assign their interest in the partnership?

Yes, with the consent of the general partner and the other limited partners or as provided in the partnership agreement

Yes, with the consent of the general partner and the other limited partners or as provided in the partnership agreement

Yes (subject to the terms of the limited partnership agreement)

 

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