Tom Carey & David Crosland of Carey Olsen consider the introduction of the Limited Liability Partnerships (Guernsey) Law, 2013.
In response to the increasing demand for limited liability partnership (LLPs) structures in Guernsey the Limited Liability Partnerships (Guernsey) Law, 2013 came into force on 13 May this year.
The key features of a Guernsey LLP are similar to those registered in other jurisdictions but certain enhancements have been made to the legislation to broaden the scope of their commercial use and to benefit sponsors looking to use Guernsey as a domicile for private equity funds.
A Guernsey LLP is a body corporate with unlimited capacity and its own legal personality separate from that of its members and may be formed to carry on lawful business with a view to profit or any other lawful activity.
A member will not liable for any debt of the LLP, or of any other member, by virtue solely of their membership of it. A member's liability to contribute funds, and specifically a shortfall on its winding up, will be limited to whatever the member has agreed with the other members or with the LLP.
A member is not required to contribute capital or any effort and skill to the business to become a member. There are no rules restricting the manner by which 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 own assets and is subject to the duties and liabilities of the business to the exclusion of its members. It carries on business itself with the members acting as its agents and may sue and be sued in its own name. A Guernsey LLP must have two members and a written agreement but sponsors have complete flexibility to determine the terms of its ownership, operation and management structure within that agreement.
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 positive feature for those seeking business confidentiality. In addition Guernsey LLPs are not required by law to prepare annual accounts nor to file such accounts with the registry unlike the UK.
As a result the value of its assets and the respective shares of its members can remain private and confidential. If accounts are required by the members they are free to choose the applicable accounting standards (LLPA GAAP) and are not tied to UK GAAP or IFRS in the same way as 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 proving popular in structuring solutions for the private equity industry. In particular LLPs are ideally 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 have been established to hold aircraft and other assets and may be used for real estate joint-ventures and investment "clubs" where participants will be attracted by the ability to take an active part in the management of the LLP and its investments without giving up their limited liability. Indeed, the ability to tailor the economics of LLPs will also make them attractive as carry vehicles where the incentive arrangements can be determined by a managing member in its sole discretion.
As is being proved already the LLP is another structuring tool in the Guernsey tool box which maintains the island's position as the premier jurisdiction for private equity funds.
An original version of this article was published in Funds Europe, October 2014.
For more information about Guernsey's finance industry please visit www.guernseyfinance.com.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.