Jersey limited liability partnerships
01 August 2018
Limited liability partnerships ("LLPs") are common in many jurisdictions. This briefing summarises the principle features of Jersey LLPs.
A new law
The Limited Liability Partnerships (Jersey) Law 2017 (the "2017 Law") came into force on 1 August 2018, fully repealing and replacing the 1997 law of the same name. The new law brings significant improvements, making Jersey LLPs even more competitive for use by local and international businesses. All pre-existing Jersey LLPs have been grandfathered into, and are now subject to, the 2017 Law.
Legal personality without incorporation
Jersey LLPs have legal personality. This means that they can enter into contracts, own property and sue and be sued in their own name. Unlike their UK counterparts, Jersey LLPs are not bodies corporate. A Jersey LLP's existence and its rights and liabilities are unaffected by any changes to the composition of the partnership. That is, the coming and going of partners of the Jersey LLP (see below).
Limited liability partners
Although every partner must contribute either capital or effort and skill to the partnership, every partner in a Jersey LLP enjoys limited liability; the liabilities of an LLP are met out of the partnership's owns assets and are not to be met by its partners. Unlike with other forms of limited partnership, partners in a Jersey LLP can participate in the management of the LLP (they are each agents of and can bind the LLP) without jeopardising their limited liability status.
A Jersey LLP is tax transparent for Jersey income tax purposes; no tax assessment is raised on the LLP itself, but the partners in an LLP are potentially assessable to tax in their own names. However, non-Jersey resident partners in a Jersey LLP are not subject to Jersey tax other than in respect of certain Jersey source income (excluding interest on Jersey bank deposits), such that generally no Jersey tax will be payable by non-Jersey resident partners.
The 2017 law leaves much of the governance and regulation of the LLP subject to the terms of the partnership agreement, creating greater flexibility and allowing partners to determine between themselves their respective rights and duties.
No audit or accounts filings
There is no requirement for a Jersey LLP to be audited, nor is there a requirement to file the accounts of a Jersey LLP with any authority.
Transferable partnership interests
So long as the partnership agreement provides for it, a partner in a Jersey LLP can assign, transfer or otherwise dispose of the whole or part of their partnership interest in the partnership.
Retirement and addition of partners
Again, so long as the partnership agreement provides for it, a partner may retire and new partners may be admitted to a Jersey LLP.
The 2017 Law removes a pre-existing requirement for two "designated partners" and instead the administrative affairs of a Jersey LLP are dealt with by a partnership secretary. This role can be performed by one of the Jersey-resident or Jersey-incorporated partners or by a licensed trust company business in Jersey. Jersey LLPs pre-dating the 2017 Law must appoint a secretary before 1 February 2019.
Simple registration process
Jersey LLPs are created or "registered" by submitting a declaration to the Jersey registrar. The declaration must set out certain core details in relation to the LLP, such as its name and registered office and the intended partners (there must be a minimum of two), secretary and activities of the partnership. There is no requirement to file a copy of the partnership agreement nor for any minimum amount of capital to be subscribed for.
Winding up procedures
The procedures that should be followed to wind up a Jersey LLP in both solvent and insolvent situations have been set out clearly in Regulations made under the 2017 Law. In the case of insolvency, the procedure is very similar to a creditors' winding up in the Jersey companies law, including provisions relating to transactions at an undervalue and preferences, wrongful and fraudulent trading and extortionate credit transactions.
Uses of a Jersey LLP
Traditionally, LLPs have been favoured by accountancy practices and law firms but the features of a Jersey LLP make it attractive for use by a range of other local and international businesses, including financial services businesses. With the ability of partners to contribute solely capital (as an alternative to effort and skill) we see the potential for Jersey LLPs to also be used as investment vehicles.