Jersey enacted the Limited Liability Partnership (Jersey) Law 1997 to take advantage of the professional services' trend to convert from general partnerships to a limited liability structure.
A Jersey limited liability partnership (LLP) is a legal person distinct from its partners which can own property, sue and be sued in its name. Each partner is required to contribute effort and skill to the business of the LLP as agents of the partnership but not each other.
Broadly, they are liable for their acts and their mistakes, but not the ones made by their partners.
The LLP law was drafted with input from the major accountancy practices but, following the enactment in the UK of equivalent legislation, and the requirement in Jersey for a financial provision by way of a £5 million (€6.1 million) bond from a bank or insurance company, the law atrophied – and (until last year) no LLPs were registered.
The Jersey position remained for many years, while in parallel LLP legislation was developed and used in other jurisdictions, such as Japan, Singapore and India. There have also been a number of high-profile LLP collapses during these years, notably the Enron scandal, followed by the implosion of Arthur Andersen LLP in 2002 – which serve to underline the structural robustness of the LLP vehicle.
The Jersey position has, however, recently been reversed by the Limited Liability Partnerships (Amendment of Law) (Jersey) Regulations 2013: this removes the £5 million financial provision requirement and substitutes a requirement that withdrawals of partnership property from the LLP may only be made where a specified solvency statement has been given in the period of 12 months prior to the payment out.
This opens the way for the use of LLPs in a wide range of differing scenarios, and is very timely, given the tax changes coming through in the UK, and the drive offshore for investment managers and advisors in the light of the Alternative Investment Fund Managers Directive.
To further facilitate the use of LLPs, the Jersey regulator (the JFSC) has just amended its policies applied to licensed (regulated) entities, so that an LLP may be licensed under fund service business in the categories of investment manager, investment advisor, general partner or manager (with licensing of additional activities anticipated in the future).
The new policy requires that the LLP’s partners participating in its management must be individuals (based anywhere in the world) or, if companies, must be registered in Jersey and have at least two Jersey resident directors.
The LLP must also have a Jersey resident partner that is the “designated partner” (the partner responsible for certain formalities under the LLP Law).
Other partners in the Jersey LLP may be individuals or companies, but any such company must have only natural persons as its directors.
The LLP will still need to comply with the usual licensing requirements and – in particular – will need to have two or three persons (two if no client money/three if client money can be handled) who are natural persons within the partnership of the LLP or who are directors of a corporate partner, who satisfy the JFSC’s principal person’s test.
These changes have started to open up the usage of LLPs in Jersey, with the numbers anticipated to accelerate.
Mark Rawlins is partner at Collas Crill
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