Limited Partnerships have become very popular throughout the world, due to the flexibility, confidentiality and tax transparency offered by partnership structures.
Features
A Jersey Limited Partnership must have at least two partners, one of which has to act as general partner and one as limited partner. The relationship of the partners is governed by the limited partnership agreement and limited partners admitted to the partnership have to be registered in the partnership register. The partnership register is a non-public register held by the general partner, which makes partnerships generally very suitable for investors seeking special confidentiality for their investments.
General partners are responsible for the management of the partnership and act on behalf of the partnership. The Jersey Limited Partnership (Jersey Law 1994) has no own legal personality and all assets are therefore held in the name of the general partner.
The general partner can be an individual or a company, but because the general partner has unlimited liability for all the partnerships debts and obligations, it is common for general partners to be Special Purpose Vehicles ("SPVs") with limited liability, thus effectively limiting the liability of the general partner. Save for where there is a regulatory requirement, the general partner does not have to be resident or incorporated in Jersey or specifically capitalized.
Limited partners cannot participate in the management of the partnership and the liability of a limited partner is limited to the capital contributed or, if the capital has not fully been paid, up to the difference between the capital committed and contributed. The form of the limited partner's contribution is flexible and can be made in cash, in specie or through the provision of services. Limited partners can also provide loans to the limited partnership and any partner providing such a loan will be ranking as creditor pari passu with external creditors of the partnership.
A partnership agreement conveys the right to receive a share of the profits and losses of the partnership which is commonly termed "partnership interest". Limited partners are entitled to share profits of the limited partnerships pro rata to the paid up contributions and it is possible to create different classes of limited partnership interests. Provided a general partner is able to discharge the debts and obligations of the limited partnership, profit and capital profits may be distributed to limited partners.
Formation
A partnership is formed by delivering a declaration signed by the general partner (or general partners) to the Registrar of limited partnerships. The declaration must include the name and the ultimate beneficial owners of the general partner, the registered office address in Jersey and the duration of the partnership. It does not have to include the identity of the limited partners, their capital contribution or the purpose of the partnership. There is also no requirement to file the limited partnership agreement or the partnerships accounts.
The partnership will have to apply for a Consent under the Control of Borrowing (Jersey) Order 1958, the standard consent in Jersey required for the creation of any security interest, before partnership interests can be created.
Tax Treatment
A limited partner who is not resident in Jersey will not be liable to Jersey income tax as long as his share of the profits of the Partnership is not derived from Jersey sourced income. SPVs acting as general partners are subject to the standard 0% tax rate for Jersey companies.
The Separate Limited Partnership and the Incorporated Limited Partnership
Since the introduction of the Limited Partnership (Jersey) Law 1994, limited partnerships have been used widely in Jersey and as result of the ongoing demand for a Jersey limited partnership structure, Jersey has recently introduced additional partnership structures in the form of the Jersey Separate Limited Partnership and the Jersey Incorporated Limited Partnership.
The main difference to the traditional Jersey limited partnership is that both new partnerships have own legal personalities. Whilst they operate very similarly to the standard and traditional partnership and are subject to the same tax treatment in Jersey, the Separate and Incorporated Limited Partnerships can acquire, hold property or engage with third parties in their own name. Incorporated Limited Partnerships are by definition a body corporate and the General Partner acts as an agent of the partnership and owes fiduciary duties to the partnership, similarly to those a director owes to a Jersey company. The general partner of the
Incorporated Limited Partnership will only be responsible for the debts and other obligations of the partnership once the partnership itself has defaulted. This is very different to the position of the general partner of other Jersey limited partnership structures and provides for the first time for a certain inbuilt limitation of liability of the general partner.
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.
