The Limited Liability Partnerships (Guernsey) Law came into force in May to meet demand for limited liability partnership (LLPs) structures in Guernsey.
The key features of a Guernsey LLP are similar to those registered in other jurisdictions but enhancements have been made to the legislation to broaden the scope of commercial use and to benefit sponsors looking to use Guernsey as a domicile.
A Guernsey LLP is a body corporate with unlimited capacity and its own legal personality separate from members and may be formed to carry on lawful business with profit or any other lawful activity.
A member will not be liable for debt of the LLP, or of any other member, by virtue of their membership of it. A member’s liability to contribute funds, and a shortfall on its winding up, will be limited to what the member agreed with other members or the LLP. A member is not required to contribute capital or effort and skill to the business.
There are no rules restricting the manner the LLP may issue, maintain or distribute capital and income within the LLP and to its members other than the requirement to maintain solvency and members may take a full and active part in the conduct and management of a Guernsey LLP without losing their limited liability status.
A Guernsey LLP owns its assets and is subject to the duties and liabilities of the business to the exclusion of its members. It carries on business with the members acting as its agents and may sue and be sued in its name. A Guernsey LLP must have two members and a written agreement but sponsors have flexibility to determine the terms of ownership, operation and management structure. Guernsey’s modern, electronic registry system allows new LLPs to be formed on a same-day basis and there’s no requirement to file the written agreement with the registry – a feature for those seeking business confidentiality.
Guernsey LLPs are not required by law to prepare annual accounts nor to file such accounts with the registry unlike the UK. The value of assets and the respective shares of its members can remain private and confidential. If accounts are required they are free to choose the applicable accounting standards (LLPA GAAP) and are not tied to UK GAAP or IFRS unlike UK LLPs. Guernsey LLPs are tax transparent for Guernsey tax purposes with members liable for their share of the profits and gains of the LLP.
USES AND BENEFITS
The fact that LLPs can be used for any lawful purpose means that LLPs are popular in structuring solutions for the private equity industry. LLPs are suited as special purpose management companies or general partner vehicles and as such are a solution to the issues arising under the UK’s Partnership Accounts Regulations and the Alternative Investment Fund Managers Directive.
LLPs were established to hold aircraft and other assets. They may be used for real estate joint-ventures and investment “clubs” where participants will be attracted by the ability to take a part in the management of the LLP and its investments without giving up limited liability. The ability to tailor the economics of LLPs will make them attractive as carry vehicles where the incentive arrangements can be determined by a managing member in its sole discretion.
The LLP is a structuring tool in the tool box which maintains Guernsey’s position as the premier jurisdiction for private equity funds.
Tom Carey (pictured) and David Crosland are partners at Carey Olsen.
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