Jersey Limited Liability Partnerships
By Kate Anderson, Voisin
Limited liability partnerships ("LLPs") were introduced to Jersey in 1998, when the Limited Liability Partnerships (Jersey) Law 1997 (the "Law") came into effect. However, despite being hailed as an exciting new structure, Jersey LLPs were targeted at large professional partnerships, and as such the Law contained a requirement that a £5 million bond or similar financial provision ("Financial Provision") was maintained for the benefit of creditors upon the winding up of the LLP.
In the time since the introduction of the Law it has become apparent, due to various reasons, that those professional partnerships in Jersey who could maintain the Financial Provision £5 million capital had no appetite for the LLP and no such LLPs were established.
However, there is one area in which there has been considerable interest the Jersey LLPs over the intervening years, that is the use of Jersey LLPs as an investment or property holding vehicle in much the same way as the English LLP has been used in England. Until now we have had to advise clients that the vehicles are unsuitable to use for this purpose due to the Financial Provision and outline alternative structures which were available. Where the parties have wished for all of the partners to participate in the management of the partnership (for example the alternative structure of the Limited Partnership only permits the limited liability partners to exercise restricted powers or they risk losing their limited liability status) this has invariably led to a loss of business for the Island to competing jurisdictions.
However, things have recently changed for the better. On 17 January 2013 the Limited Liability Partnerships (Amendment of Law) (Jersey) Regulations 2013 (the "Regulations") came into force amending the Law. The result of this amendment is that LLPs are no longer required to maintain the Financial Provision. Instead the Law now prohibits the withdrawal of the LLP's partnership property (including profits) by any partner unless the LLP gives a prescribed form of solvency statement within a 12 month period prior to such withdrawal. In essence, similar to the requirements placed upon a company when making a distribution, the LLP must be satisfied that having regard to its prospects and financial resources and the intentions of its partners, it will be able to continue to carry on its business and discharge its liabilities as they fall due for a period of 12 months (or the earlier dissolution of the LLP).
The partners of the LLP will maintain their limited liability status and not be liable for the repayment of the debts or liabilities except in certain circumstances prescribed by the revised Law. These include where the property was withdrawn when the LLP had not made the relevant solvency statement or the LLP made the solvency statement without having reasonable grounds to do so.
The amendments open up the uses of LLPs to a much wider audience. Not only can the property and investment holding structures now utilise the vehicles but the local Jersey partnerships can utilise the LLP to limit their exposure whilst retaining the essence of what constitutes a partnership. A further benefit of the Jersey LLP over other LLPs in competing jurisdictions is that whilst it has a separate legal personality it is not a body corporate. The result is that in some jurisdictions (including Jersey), although not all, the Jersey LLP will be a transparent vehicle for taxation.
The removal of the Financial Provision and replacement of the same with the solvency test should result in a renewed interest in what is now an attractive vehicle and hopefully allow Jersey to compete with other jurisdictions which already utilise the limited liability structure. This will be further strengthened by the introduction of the new limited liability partnership law later in the year to further modernise the Jersey LLP.
Kate Anderson, Associate
Voisin, Jersey, Channel Islands