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The Limited Liability Companies (LLC) Law is
expected to come into force in early 2019 and is designed to allow
fund managers and investors to use a LLC structure which they will
be familiar with from the US and certain other international
finance centres.
LLC Overview
LLCs are a very flexible structure. They are very widely used in
the US across a range of areas including holding companies and fund
structures which is what they will most likely be used for in
Jersey. It is estimated that over two thirds of all newly
established entities in the US are LLCs.
The Jersey Financial Services Commission (JFSC)
will issue a certificate of formation for LLCs in Jersey and will
be the regulator for them. Given the popularity of LLCs as fund and
fund management vehicles it is expected that JFSC guidance and
Codes of Practice will also be updated to allow LLCs to be used for
collective investment funds and for funds services business.
Key features of LLCs include:
They will have legal personality (can
sue and be sued and own assets in their own name) but will not be a
body corporate;
They benefit from limited
liability;
They must have at least one member
and can have managers;
The key governing/constitutional
document of the LLC is the LLC agreement. In keeping with other
jurisdictions, the LLC agreement will not be a matter of public
record so members (and managers) can regulate their affairs
privately. This distinguishes LLCs from traditional limited
companies where memoranda and articles of association are
publically available and is more akin to limited partnerships whose
partnership agreements do not need to be filed;
The terms of the LLC agreement will
determine how the LLC is operated. The member or members may
operate the LLC themselves or can appoint one or more managers (who
will act in a manner broadly equivalent to directors of a
traditional limited company) to undertake the operation and
management of the LLC;
The appointment of a Jersey resident
secretary (typically a Jersey based corporate services provider)
who will be responsible for record keeping and will usually also
provide the registered office for the LLC;
The ability to create separate series
consisting of separate members, managers, interests or assets each
of which will have separate legal personality. These series LLCs
are typically used for fund or structured finance transactions and
are similar in concept to cell companies. Typically series are used
to ring fence assets and liabilities for a specific fund or deal
and are common in the US.
In addition to the LLC Law there will be ancillary laws and
regulations passed but in keeping with Jersey's excellent
reputation as a well-regulated and transparent international
finance centre it is anticipated that LLCs will be subject to the
strict anti-money laundering and "know your client"
regime which exists here. LLCs will also need to comply with the
requirement to disclose ultimate beneficial owners to the JFSC.
They will also likely be subject to the recently enacted substance
requirements which have been introduced by Jersey in consultation
with the European Union as part of the OECD's "base
erosion and profit shifting" international initiative which
Jersey complies with. Finally, LLCs will also be subject to the tax
information exchange arrangements which Jersey has entered into
based on the OECD model.
The tax treatment of LLCs in the US depends on the
"check-the-box" election and is deliberately designed for
maximum flexibility. Jersey LLCs should be treated in the same way
as any other non-US LLC and able to make appropriate elections
depending on underlying tax analysis and advice.
While initially a product designed primarily with the US market
in mind there is a possibility that other jurisdictions will be
attracted to the LLC as a structure or that fund managers from
outside the US will use Jersey LLCs to attract US investors.
Summary
The LLC Law will allow US investors, fund managers and other
businesses to set up a familiar structure in Jersey which should
increase the jurisdiction's appeal to the US market. Jersey
Finance (the industry body which represents Jersey's finance
industry internationally) has announced their intention to open an
office in the US in the near future and the timely introduction of
the LLC Law should enhance structuring options for US investors who
are attracted to Jersey as a finance centre with an excellent
geographical location, reputation and time zone.
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.
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