Jersey Limited Partnerships have become favoured vehicles for any enterprise or group of individuals that require flexibility, privacy, limited liability and the ability to return capital easily to investors. This guide is intended to provide an outline description of the four different types of LPs which can be established under Jersey law.*
There are 4 different types of Jersey LP, and each type has distinct characteristics - with each providing a flexible vehicle for use by sophisticated investors, families and institutions who wish to participate in structures with the benefit of limited liability without necessarily becoming involved in the management of that vehicle’s affairs.
Jersey has created separate laws to deal with each type of partnership to allow for the differences in the legal personalities of each partnership type. Below is a list of the different types of limited partnerships and their respective law:
A Jersey LP can be formed for ‘any lawful purpose’ and must have at least two partners; one or more general partners and one or more limited partners.
A general partner can be a limited partner and vice versa. General partners manage the affairs of the LP and have unlimited liability (although can themselves be limited liability companies). Limited partners are the passive investors of the LP and have no involvement in the day-to-day management of the LP.
An LP has no separate legal personality distinct from its partners. This means it is the general partner that must hold the LP’s property and contract on behalf of the LP. The limited partner has no authority to bind the LP and it must ensure that it does not participate in the management of the LP except in certain circumstances as set out in the law (e.g. the limited partner can approve the purchase and sale of assets).
The consequence of a limited partner engaging in the management of the LP is that it risks losing its limited liability protection. Otherwise, the liability of a limited partner in relation to the debts of the LP is limited to the difference, if any, between the value of the assets it has agreed to contribute to the LP and the value of the assets that it has actually contributed. Conversely, the general partner is liable for all the debts and obligations of the LP (but, as noted above, can itself be a limited liability company).
Forming an LP is an uncomplicated process. The terms of the LP are agreed by the partners and set out in a partnership agreement (“LPA”). In addition, a public declaration (the “declaration”) must be filed with the Jersey Registrar stating the name of the LP, confirming its registered address in Jersey and giving details of the general partner and the expected duration of the LP. The purpose and activities of the LP need to be privately explained to the Registrar but are not disclosed in the public declaration. Similarly, there is no need to file a copy of the partnership agreement and there is no requirement to file details of the limited partners or their capital contributions.
A registration fee of £500 is payable to the Registrar, upon which the Registrar can issue a certificate confirming that the declaration has been filed and that the association of the partners has become a ‘limited partnership’ (i.e. that the liability of the limited partners has become limited).
As with companies, LPs are required to obtain consent under the Control of Borrowing (Jersey) Order 1958. This is usually dealt with at the same time as the execution of the LPA and submission of the declaration to the Registrar. Where the LP is created for private business, and where there are fewer than fifteen limited partners, this process can be achieved within a few days and there will be no further regulatory matters to undertake.
However, if an LP intends to offer limited partnership interests to the public as a collective investment scheme, permission under the Collective Investment Funds (Jersey) Law 1988 will also be required. In addition, depending upon the activity of the LP (e.g. if it is to be used to engage in financial service activities with third parties), the regulatory treatment of the LP may be subject to the Authorisation Division of the JFSC and the GP may be subject to other regulatory requirements.
The general partner will have responsibility for the management and administration of the LP in accordance with the terms of the LPA. The LPA can be tailored as required within the confines of the Law but should set out the respective rights and obligations of the partners.
An LP must have a registered office in Jersey and must keep at the registered office copies of the LPA, the declaration, a register of limited partners and a register of limited partner contributions. These documents are private and are only available for inspection by the partners. Other than in certain limited circumstances, there is no requirement for an LP to have a Jersey resident general partner.
The Law requires LPs to keep accounting records that are sufficient to show its transactions and that will disclose with reasonable accuracy at any time its financial position. There is no requirement for the accounts to be audited and no requirement for the accounts to be filed publicly. Accounts may be maintained in any currency.
The Law allows for limited partners’ contributions to be made in the form of money, other property or in services. Subject to the terms of the LPA, Jersey LPs can operate on a variable capital basis, which allows capital contributions to be increased or returned to limited partners during the lifetime of the LP. A limited partner can lend funds to an LP and, in so doing, will rank as a creditor in respect of that loan pari passu with external creditors.
An LP may freely make distributions of capital and profit, subject to a simple solvency test. Distributions that are later recognised to have been made whilst insolvent are subject to clawback for a period of six months. Subject to the LPA, limited partners rank pari passu with each other in respect of the return of their contributions and pro rata in respect of profits - meaning that you can easily create different classes of limited partner interest.
The dissolution process is quite straightforward. An LP is dissolved upon the registration of a statement of dissolution executed by the general partner. This must be undertaken even where the LP has come to the end of its stated duration or where the LPA makes provision for the LP terminating upon some other event (e.g. upon the death of a limited partner). In addition, an LP will be dissolved immediately where there is no general partner able to act, although there is provision for continuance in these circumstances.
Upon dissolution, and once the LP’s creditors have been paid, the remaining funds are returned to the partners in the following order:
In Jersey, an LP will be fiscally transparent; meaning that each partner is assessed separately according to his or her own status and that the LP is not itself assessed to tax in Jersey at all. Apart from where an LP is trading in Jersey, or is in receipt of Jersey-source investment income (other than bank interest), distributions paid to partners are paid gross without deduction in respect of Jersey tax.
This treatment is usually reflected in other jurisdictions. For example, where a Jersey LP undertakes business in the United Kingdom, it is understood that the LP will be transparent for the purposes of UK income/corporation tax and UK capital gains tax so that each partner is liable to tax on their own personal share of the income/gain under the taxation regime of their country of residence.
Generally speaking, this fiscal transparency is the principal benefit of an LP. One advantage of this characteristic is that a limited partner may be able to set off his share of an LP’s losses against profits he has from other investments. Also, the profits and losses of an LP that are attributable to any partner will usually be treated as arising in the country in which the LP’s investments are made; which may allow the partner to make use of any tax treaties that exist between that country and his country of residence.
Jersey LPs have become favoured vehicles for any enterprise or planning that requires flexibility, privacy, limited liability and the ability to return capital easily to investors upon the realisation of an investment. As such, we have seen Jersey LPs used for:
The Law allows for Jersey LPs to be used in a broad range of financial planning arrangements and a Jersey partnership may have advantages over those in other jurisdictions in that the identity of limited partners and their contributions can remain private, financial statements can remain private, there is no upper limitation on the number of limited partners and there is no restriction on the business or investment that a Jersey LP may undertake.
The description of LPs in section 1 above applies equally to an SLP except in respect of the differences listed below. The requirements for formation are substantially the same as for LPs and the partners only need to decide at the outset whether to register the partnership under the Law or the SLP Law. Once this is done, the main differences compared to LPs are as follows:
The above characteristics may make the SLP a useful vehicle for structures that require a carried interest function and where tax transparency and limited liability are needed. SLPs may be of particular use when a partnership must deal with jurisdictions that do not recognise the concept of limited partnerships. It should be noted that a Jersey SLP is similar in nature to a Scottish limited company but without the requirement of needing to be formed ‘to profit’ and without the administrative accounting and disclosure burdens that a Scottish partnership might have.
Again, the description of LPs in section 1 above applies equally to an ILP except in respect of the differences listed below:
The above characteristics will make ILPs useful in circumstances where there is a risk that a jurisdiction outside of Jersey might not treat a limited partner of a partnership as having limited liability. This is because an ILP is a body corporate and it is usually the case that most jurisdictions will accept that a body corporate is governed by the legislation of the jurisdiction in which it is incorporated.
Again, the description of LPs in section 1 above largely applies to LLPs except for the following distinctions:
*This guide does not answer all questions regarding Jersey partnerships and does not represent any legal or tax advice.
The Crown Dependencies, including Jersey, have all committed to bringing in legislation regarding economic substance in 2019. Fiduchi's Director of Operations Paul Coundley looks at one requirement of the legislation.
Fiduchi is a regulated provider of trust and company services, and therefore its experts are able to assist you in all aspects of ensuring continued compliance in the constant changing landscape. At Fiduchi we take a pragmatic approach to ensure your interests, whether personal or business, are safeguarded. Because of this, we don’t apply a ‘one size fits all’ methodology, rather the contrary. Our director led teams can assist you to the creation of International Savings Plans and Retirement Trust Schemes.