by Richard Pirouet
Since the article below was written, the legislation introducing LLP's in Jersey has been enacted in the island. Possible moves by large UK firms of Chartered Accountants to register in Jersey were suspended when the Inland Revenue issued a press release to the effect that they intend taxing Jersey LLP's operating in the UK as companies. This view has been disputed by Ernst & Young and Price Waterhouse and is currently subject to judicial review. It is unlikely that any UK firms will register as LLP's in Jersey until the review process is complete.
After a lengthy debate, the States of Jersey approved, on 24 September 1996, the introduction of legislation permitting the registration of Limited Liability Partnerships (LLPs) in the Island. The legislation was drafted in conjunction with the UK firms of Ernst & Young and Price Waterhouse and is similar in many respects to the Limited Liability Partnership law in the state of Delaware. The law now requires the approval of The Privy Council and should come into effect in the second quarter of 1997.
The initiative by the Jersey authorities followed the registration in Delaware of the US partnerships of all the big six accounting firms. The Island of Jersey is a leading financial centre and it can now offer a place of registration as an LLP for partnerships operating not only in the UK but in other countries in the world. The legislation has been drawn up to enable various professions, and not just accountants, to register.
Registration under the law will protect from the firm's creditors the personal assets of all partners, other than the partner held to be responsible for the particular act under which a claim is made against the partnership. It will not protect the partnership assets from creditors and neither is it aimed at producing any tax benefits. The tax situation will depend on the laws of the country in which the partnership is practising, but generally the registration of the partnership in Jersey will be transparent for tax purposes and tax will be paid in the home country on the same basis as usual. Neither will registration in Jersey have any effect on the statutory and professional rules governing the activities of the partnership in its home country.
Jersey already has legislation covering limited partnerships which are frequently used in mutual fund structures to give investors limited liability, tax transparency and the ability to offset any underlying tax credits against tax liabilities in their home jurisdiction. This legislation is not, however, suitable for the operation of professional service firms as it prohibits limited partners from taking any part in the management of the business activities. It has therefore been necessary to draft a new law known as The Limited Liability Partnerships (Jersey) Law.
The new legislation has the following features:
- An LLP is a legal entity separate and distinct from its individual partners but is not a body corporate. Every partner is an agent for the LLP but not for the other partners.
- The proceeds of any claim against the LLP will be limited to the assets of the partnership, the financial provisions referred to in paragraph 5 below and the personal assets of any partner held to be responsible for the particular act which has brought about the claim against the partnership.
- There will be a registration process whereby details of the LLP, and all its partners, are held on a central registry in the Island of Jersey.
- There will be annual registration fees payable to the States of Jersey but the amount of these has not been quantified as yet.
- Each LLP will have to make financial provision such that a bank or insurance company will make payment of a stipulated sum to the person winding up the LLP. This sum will be available to meet claims of creditors over and above the proceeds of any insurance claims and the unencumbered assets of the partnership. The legislation in its present form sets this amount at £5 million but there is discretion granted to the Finance and Economics Committee to change this figure as it thinks appropriate. The size of this bond is an indication that the authorities are seeking to promote registration by partnerships of substance and stature.
- Unlike the existing limited partnership law, there will be no need to have a general partner in an LLP. This will avoid the usual need to have a corporate limited partner.
If you require further information on this subject please contact Paul Frith.
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.