Knowledge

It is now possible to establish separate limited partnerships ("SLP") and incorporated limited partnerships ("ILP") in Jersey.

Separate laws have been enacted for each vehicle and the new laws will run in parallel with the Limited Partnerships (Jersey) Law 1994 (the "LP Law"), pursuant to which traditional Jersey limited partnerships are established. Accordingly, three distinct limited partnership options are available in Jersey. Traditional Jersey limited partnerships have no separate legal personality or perpetual succession. (For additional information on traditional limited partnerships, please refer to our briefing on the Limited Partnerships (Jersey) Law 1994).

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 will complement the range of vehicles already available in Jersey, giving fund promoters additional options for the creation of their Jersey investment fund and carried interest vehicles. They should also find application in a wide range of corporate and private client structures.

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

Separate Limited Partnerships
Basic Structure: Save for certain key differences outlined below, the basic structure of an SLP is very similar to the traditional Jersey limited partnership. An SLP must have at least one general partner and one limited partner. An SLP is required to have a partnership agreement although this will not be publicly available. An SLP may be formed for any lawful purpose. A declaration must be filed with the Jersey Registrar of Limited Partnerships in order to establish the SLP. These are substantially the same requirements as for traditional Jersey limited partnerships and it will simply be a matter for the partners to decide to register under the LP Law or the SLP Law, depending on whether they wish the limited partnership to have its own legal personality or not.

Separate Legal Personality: The SLP is a "legal person" without being a body corporate and will be able to 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 doctrine does not apply and the 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 and 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 (excluding interest on Jersey bank deposits), which generally means that no Jersey tax will be payable by non Jersey resident limited partners. Whilst tax advice should always be sought, it is anticipated that SLPs will be 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, regardless of whether or not such profits are distributed to the limited partners. This means that the SLP structure will not prevent the flow of profits to the limited partners' accounts, even if those profits are not immediately distributed to the limited partners.

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, although, in practice, the general partner is often structured as a limited liability company or entity.

Partnership Property: The SLP is capable of holding assets in its own name. However, as is the case with traditional Jersey limited partnerships, an SLP is not precluded from holding assets in the name of its general partner should this be required for structuring or other purposes. The SLP Law states that, where property is vested in the name of one or more general partners, it will be held for the benefit of the partners in accordance with the partnership agreement, thereby ensuring 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 provide an innovative addition to the range of partnership vehicles available in Jersey. The ILP Law is also largely based on the LP Law and 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" and each general partner of the ILP will be required to file a declaration with the Jersey Registrar of Limited Partnerships pursuant to the ILP law in order for the ILP to be validly incorporated. An ILP must have a partnership agreement, although it will not be a publicly available document.

ILP as a Body Corporate: Like SLPs, ILPs also have legal personality and can hold assets in their own name, rather than in the name of their general partner (although it is possible for the assets of an ILP to be held by a nominee), and can sue and be sued in their own name. The main difference is that, in contrast with traditional Jersey limited partnerships and SLPs, ILPs are incorporated (that is, bodies corporate akin to a limited company and completely separate from their partners) and have perpetual succession. Limited partners are permitted to freely assign their interests in the ILP (subject to the terms of the partnership agreement) and the ILP may only be dissolved in accordance with the ILP Law and regulations made thereunder - with winding up and insolvency procedures similar to those applicable to Jersey limited companies - regardless of 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 and 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 (excluding interest on Jersey bank deposits), which generally means that no Jersey tax will be payable by non Jersey resident limited partners. UK tax counsel opinion issued in connection with the preparation of the ILP Law indicates that ILPs are likely to be 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: Contrary to traditional Jersey limited partnerships and SLPs, the ILP will be primarily responsible for its debts and liabilities and the general partner will only be responsible for debts and liabilities after the ILP has defaulted.

General Partner as Agent: The general partner of an ILP will act as an agent of the ILP and will owe the ILP statutory fiduciary duties – analogous to those owed by directors to Jersey companies – and will be required to 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 overcome the issue on the basis that they have legal personality and may be regarded 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: SLPs, ILPs and traditional Jersey limited partnerships will be governed by three separate statutes and there will be no ability to convert or re-characterise one type of partnership into another. This model provides certainty for promoters and investors. It should also mean that tax issues which 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 will be avoided.

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 statutory 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 participates 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 participating in the management of the partnership.

Flexibility: There are no prescriptive 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, nor does the partnership agreement 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, and therefore 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.

Reporting Funds Regime:  Under the UK Reporting Funds Regime, the definition of "offshore fund" is now based on a definition of "mutual fund" introduced by the UK Finance Act 2008. While specific UK professional advice should always be sought, UK tax counsel's opinion suggests that neither SLPs nor ILPs are likely to be regarded as mutual funds – therefore falling outside the scope of the Reporting Funds Regime altogether – on the basis that limited partner investors in an ILP or an SLP would not expect to be able to realise an investment entirely or almost entirely by reference to the net asset value of the property that is the subject of the arrangements.