The effect of the introduction of two new types of limited partnership in Jersey
The States of Jersey are awaiting approval from the Privy Council to complete legislation which will introduce two new limited partnership structures and hence broaden the options for fund structuring using limited partnerships. This approval is expected in the early part of this year.
These two new forms of limited partnership are Separate Limited Partnerships (SLPs) and Incorporated Limited Partnerships (ILPs).
The Jersey Limited Partnership
The current Jersey Limited Partnership (LP) already provides an effective vehicle for investors to participate in a structure which allows them to have a certain level of influence without being seen as having an active role in the management and control of the partnership affecting the tax position or putting their limited liability at risk.
How do the new structures change things?
The SLP and ILP will follow the general form of and have the benefits of the existing LP structure but with added characteristics.
Both the SLP and ILP will have separate legal personality and the ILP will also be a body corporate.
Separate legal personality
The distinct legal personality means that both structures will be able to enter into contracts, hold assets and sue or be sued in their own right without acting through their general partner as is the case for current LP structures.
The SLP can also act through its general partner, if that is required, but the ILP cannot as it is a body corporate.
The ILP as a body corporate
The main effects of this are as follows:
- ILPs will have perpetual succession and their existence would not depend on its partners.
- There will be detailed winding up and insolvency provisions for ILPs.
- The general partner of an ILP will have fiduciary duties similar to that of a director of a limited company.
- The general partner of an ILP has more limited responsibility for the debts of the partnership than is the case in relation to LPs and SLPs.
Early indications are that the SLP will be tax transparent for both UK income tax, stamp duty land tax and capital gains taxes whereas the ILP will be transparent for income taxes and stamp duty land tax but opaque for taxation on capital gains.
Therefore, the choice of structure may differ depending on operational considerations and the investments to be held.
The tax treatments in other jurisdictions will obviously vary but the basic benefit of all the partnerships will be tax transparency as that leaves the investor to deal with the tax issues in their own jurisdiction without adding an extra layer of complication.
The opportunities offered by the new structures
The two new structures offer a number of opportunities for structuring for both the fund services provider and for general investors.
Along with the tax planning benefits stated above, and the different characteristics of the two new structures provides greater choice and hence allows the structure to be tailored to specific circumstances and requirements.
One specific benefit that has already been identified even before the completion of the legislative process is the use of an ILP or SLP as a carried interest partner in another partnership as having a separate legal personality allows them to be seen as a 'person' for the purposes of being a partner.
A common Fund structure has a Scottish Limited Partnership (ScLP) as a partner to the main fund partnership through which the fund promoter can receive their carried interest return based on the performance of the fund.
The structure of the SLP is very close to that of the ScLP and so it can be seen as a direct alternative to it. The added bonus for the SLP is that it will be outside the HMRC guidance for filing information and details on non UK investors.
Overall the SLP and ILP should be a popular extra string to Jersey's bow when looking at possible structuring of fund and other investment vehicles.
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.