One of the key features of Jersey's fund industry is the flexibility and range of structures available. There are a number of potential drivers to consider when determining your fund structure including, not least, tax advice, investor preference, manager familiarity and suitability for asset class.
Jersey, with its long established reputation as a fund domicile for alternative investment funds, has developed a reliable legal and fiscal framework combined with a proactive approach to developing new products designed to maintain Jersey's position as a leading international finance centre.
The most popular fund structures in Jersey tend to include:
- companies (whether single class, multi-class, umbrella, incorporated and protected cell companies);
- limited partnerships (or incorporated limited partnerships or separate limited partnerships); and
- unit trusts.
Our team of experienced professionals would be happy to assist you in determining the most appropriate structure for your new fund. This briefing is designed to provide an initial overview of the options available.
Jersey corporate funds are established under the Companies (Jersey) Law 1991, which is a flexible statute based upon familiar English company law principles. Some of the key benefits of Jersey companies include their separate legal entity status, limited liability for shareholders, share denominations in any currency and the ability to be incorporated in as little as two hours.
There is no minimum authorised or issued share capital requirement imposed on Jersey companies (other than in respect of certain regulated business activities) and they can be incorporated with single or multiple share classes, each having differing rights as to voting powers, distribution payments (dividends) and rights on a winding up. Furthermore, a Jersey corporate fund can be either open or closed-ended, meaning that shares may or may not be redeemable at the option of investors.
Closed-ended corporate funds are more commonly used for real estate funds and private equity funds where investments are considered more illiquid. An open-ended corporate fund will have one or a number of classes or series of shares that are available for redemption at the option of the shareholders. Redemption provisions are drafted to reflect dealing frequency and often include restrictions in certain specified circumstances e.g. where the net asset value cannot be properly calculated.
In Jersey, if a company has a class of shares that are redeemable at the option of its shareholders (usually known as participating shares) then it must also have a class of shares that are not redeemable (often known as management shares). These are often held by the investment manager or promoter of the fund. Open-ended funds are more traditional for hedge funds, funds investing in listed equities and other funds with more liquid asset classes.
A Jersey company can be incorporated as a public or private company and as either a par or no par value company. In the case of a no par value company, shares are issued at a price determined by the issuing company and not at a fixed 'nominal' value plus any share premium, as is the case with par value companies. No par value companies simply have a stated capital account, which comprises all of the share capital.
The directors of a corporate fund hold the decision making-powers and ultimate responsibility for the fund's activities although certain functions – such as company/fund administration and custody are often delegated. In fund structures (particularly open-ended funds), the investment management function will typically be delegated to a separate investment manager, although "self-managed" funds are also becoming increasingly popular.
The articles of association of the company will likely include certain provisions as to the ability to appoint committees and may specify any acts requiring shareholder approval, in addition to those retained under the Companies (Jersey) Law 1991.
In addition to the general limited liability company, Jersey offers two different types of cell company:
- Incorporated Cell Company ("ICC"); and
- Protected Cell Company ("PCC")
The principal benefit of ICCs and PCCs is the segregation of assets and liabilities within separate cells. Cell companies have the benefit of a statutory "ring-fencing" of assets and provides that where a creditor enters into a transaction involving the assets of a particular cell of a cell company, any claim in connection with the transaction should extend only to the cellular assets of the relevant cell. No recourse is available to the assets of any other cell or to the cell company's other assets.
A PCC is a separate legal entity but its cells are not bodies corporate and, therefore, do not have a legal identity separate from the PCC of which they form part. ICCs are similar in many respects to PCCs. However, each incorporated cell of an ICC is a company in its own right (albeit also as a cell of the ICC). ICCs and PCCs have proven useful for creating fund platforms as a way of segregating assets between different groups of investors in the fund.
Jersey limited partnerships may be established and operated under Jersey's comprehensive limited partnership legislation and are frequently used in fund structures. A limited partnership can be an attractive structure for various tax planning purposes as the partnership is generally treated as being fiscally transparent. The Jersey limited partnership is a well-trodden path for institutional and sophisticated investors with experience investing in private equity, venture capital and real estate asset classes, or other types of closed-ended funds with a predetermined life span.
Limited Partnership Interests
A limited partnership is created by a written partnership agreement combined with a registration of the limited partnership at the Registrar of Limited Partnerships in Jersey. The liability of investors holding interests as limited partners, and who do not participate in the management of the business, is limited to the amount of their investment.
There is a great degree of flexibility as to the provisions to be included in the limited partnership agreement e.g. the ability to appoint a limited partner advisory committee (comprising representatives of particular investors), arrangements as to management fees, and processes for dealing with defaulting limited partners. It is possible to make loan as well as capital commitments to a Jersey limited partnership.
Each Jersey limited partnership will need to appoint a general partner who is deemed to hold the property of the partnership in its own name as an asset of the limited partnership. The general partner will manage the business of the limited partnership and have unlimited liability for its debts. The general partner has power and responsibility for making decisions about the running of the limited partnership. The general partner is typically structured as a Jersey limited liability company, but may also be structured as another limited partnership (with a limited company is its general partner) or an LLP. It is also possible to have a Jersey general partner of a non-Jersey domiciled.
Alternative Partnership Structures
Jersey offers a selection of limited partnerships, including separate limited partnerships (SLPs), incorporated limited partnerships (ILPs) and limited liability partnerships (LLPs).
SLPs have separate legal personality, without being incorporated. This means that an SLP has the flexibility to own property, enter into contracts, and litigate and be litigated against in its own name (in contrast to a standard limited partnership). Separate legal personality may be of particular use where the SLP will be investing in, or contracting with entities from, a jurisdiction which does not recognise the concept of limited partnerships, as the concept of separate legal personality is generally recognised in most jurisdictions.
ILPs are incorporated as a body corporate with perpetual succession. One advantage of having body corporate status and thus perpetual succession is that persons dealing with an ILP can be confident that it will continue to exist and be held accountable for its debts and obligations until wound up in accordance with the statutory process (in broadly the same way as a company). An ILP can hold property and can litigate and be litigated against in its own name. The general partner acts as an agent of the ILP. A further advantage is that most jurisdictions generally accept that a body corporate is governed by the law of the jurisdiction in which it is incorporated. This might be particularly important if there were perceived to be any risk that a limited partner might otherwise be treated by a non-Jersey court as having unlimited liability.
LLP's are a distinctive type of legal entity created pursuant to the Limited Liability Partnerships (Jersey) Law 2017. An LLP has separate legal personality. LLPs cannot, however, be established as a "collective investment fund" in Jersey but may be used for other purposes within the broader fund structure.
In contrast to a company, a unit trust is not a separate legal entity as such, but an arrangement whereby legal ownership of the fund's assets is vested in a trustee who holds the assets of the fund on trust for the benefit of the unitholders.
The unit trust will generally be constituted by means of a written trust instrument made between a trustee company and an independent manager. The trust instrument will generally contain provisions regulating the issue, redemption and valuation of units, the appointment and removal of the trustee and the manager, their duties and remuneration, borrowing powers, investment restrictions and for the winding-up of the trust. Jersey has a modern statute-based trusts law. Unit trusts are more typically used for open-ended funds, but may also be drafted as closed-ended funds.
Typically the manager will promote, manage and administer the scheme. Subscription proceeds will be paid to the trustee who will act as custodian of the investment assets of the fund. In addition, the trustee will generally supervise compliance by the manager with its obligations under the trust instrument.
The trustee and manager of the unit trust scheme usually hold the decision making-powers and ultimate responsibility for the fund's activities although again certain functions may be delegated. Such powers and responsibilities are apportioned between the trustee and manager within the unit trust instrument.
Broader Fund Structures
Each of the fund vehicles summarised can be utilised for a number of purposes within the overall fund structure, whether as one or more of the vehicles comprising the fund, as co-invest or carry vehicles or as Jersey based investment managers or advisors appointed to the fund.
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.