Jersey: Partnerships In Jersey

Introduction

In addition to the option of creating a 'standard' partnership via a partnership agreement under Jersey customary law, Jersey will shortly have four statutorily recognised types of partnership. This briefing note will start by outlining the two types currently established under Jersey law before considering the two new types which are expected to be introduced later in 2009.

Limited Partnerships

A limited partnership ("LP") is a partnership vehicle registered under the Limited Partnerships (Jersey) Law 1994 (the "1994 Law"). It is a partnership made between one or more 'general' partners and one or more 'limited' partners. The general partner manages the partnership and as such has unlimited liability (like a partner in a 'standard' partnership) for the debts of the partnership whereas the limited partner's liability will remain limited to the amount of its contribution provided it does not become involved in the management of the LP. The general partner is usually a limited liability company and the limited partners are generally investors happy to accept a more passive role.

LPs have proved popular flexible vehicles for collective investment funds, succession and asset protection planning and for private equity and venture capital schemes.

Key features

• LPs do not have separate legal personality;
• Tax transparent: non-Jersey resident limited partner investors will only be liable for Jersey tax on Jersey-source income;
• Confidentiality: neither the names and addresses of the limited partners nor the partnership agreement are matters of public record;
• A limited partner can make its contribution via money, other property or the provision of services;
• There is no limit on the number of limited partners;
• The general partner need not be a company incorporated in Jersey;
• A limited partner may assign its interest (subject to the terms of the partnership agreement);
• A limited partner may lose its limited liability protection if it participates in the management of the LP but the 1994 Law provides a lengthy list of activities which do not constitute such participation;
• It may be established for a specific term or with unlimited duration;
• No audit requirements;
• No requirement to file annual returns and no annual fee; and
• Customary law principles applicable to 'standard' partnerships apply to LPs except in so far as they are not consistent with the 1994 Law.

Formation and Regulation

Jersey LPs are flexible and relatively easy to establish. The 1994 Law imposes relatively few restrictions on the terms of the partnership agreement which sets out in the full the relationship between the partners. Upon submission of the relevant forms, declaration of partnership and the registration fee the Jersey Financial Services Commission ("JFSC") can register the LP and issue a certificate of registration in a matter of working days.

Consent under the Control of Borrowing (Jersey) Order 1958 ("COBO") will be required. Further consents may be required and this will depend upon the activities of the LP. COBO consent should be obtained before partners execute the partnership agreement.

Limited Liability Partnerships

A limited liability partnership ("LLP") is a partnership vehicle registered under the Limited Liability Partnerships (Jersey) Law 1997 (the "1997 Law"). In short, it is a partnership with a separate legal personality distinct from its partners whilst expressly not being regarded as a body corporate. It allows all partners to be involved in the management of the partnership whilst limiting their liability.

An LLP is aimed at businesses which are traditionally carried out as partnerships or employee owned businesses. However, although an LLP could be regarded as an effective alternative to a company it has proved largely unattractive due to the statutory requirement to maintain a £5 million financial provision. The 1997 Law is currently under review and it is expected that the prohibitive statutory bond will be reduced, removed or supplemented with alternative safeguards for creditors and with it LLPs may prove a more viable option in 2010.

Key features

• Legal personality distinct from its partners but not a body corporate;
• No limit on the number of partners but there must be at least two;
• Partners may be individuals, companies or LLPs;
• Can enter into contracts and sue and be sued in own name;
• £5 million: provision must be in place with a bank or insurance company for this sum to be paid to the LLP on dissolution for the benefit of creditors;
• Confidentiality: whilst there is no requirement to file the partnership agreement or accounts the declaration naming each partner will be a matter of public record;
• The declaration must specify at least one partner as the designated partner responsible for various administrative duties;
• It will be an offence by the designated partner if an up to date declaration is not submitted annually;
• No audit requirements;
• Tax: no Jersey tax will be payable unless income arises in Jersey or one or more partners are resident in Jersey; and
• Customary law principles applicable to 'standard' partnerships apply to LLPs except in so far as they are not consistent with the 1997 Law.

Formation and Regulation

The declaration is filed with the registrar of LLPs together with the appropriate fee. The registrar will issue a certificate of registration of the declaration specifying the date on which registration will take effect.

Consent under the Control of Borrowing (Jersey) Order 1958 ("COBO") will be required. Further consents may be required and this will depend upon the activities of the LLP. COBO consent should be obtained before partners execute the partnership agreement.

Why do we need two further types of partnership?

Jersey wishes to maintain its competitive edge for corporate and fund matters by providing Industry with a choice of structures when considering what would best suit their clients' needs. In the main, it is expected that the two new proposed types of partnership, discussed below, will prove most popular with the Funds Industry.

Separate Limited Partnerships ("SLP")

The new proposed law, Separate Limited Partnerships (Jersey) Law 200-, establishing this new type of partnership is still in draft form but is heavily based upon the 1994 Law. In short, an SLP is an LP with the ability to contract in its own name and sue and be sued in its own name and since it is expressly not to be regarded as a body corporate it is not subject to the rules and obligations applicable to companies.

Key features

• SLPs will have separate legal personality but will not be a body corporate;
• Its capacity as a legal person will not be limited;
• Like an LP, it must consist of one or more general partners and one or more limited partners;
• Like an LP, any general partner will have unlimited liability for the debts of the SLP whereas the limited partners will be protected by limited liability provided they have not participated in the management of the SLP;
• It is expected that the tax position for a SLP will be same as for an LP (see above);
• Confidentiality: it is expected that the position will be the same as for an LP (see above);
• A limited partner will still be permitted to make its contribution via money, other property or the provision of services;
• There shall still be no limit on the number of limited partners;
• A limited partner will still be permitted to assign its interest (subject to the terms of the partnership agreement);
• It may be established for a specific term or with unlimited duration;
• No audit requirements;
• No requirement to file annual returns and no annual fee;
• Since an SLP has a distinct personality it will be possible to obtain judgement against either the SLP or the general partner;
• Legal proceedings may be brought in the name of the SLP or the general partner; and
• It is expected therefore that it will be possible to hold property in the name of either the SLP or the general partner.

Formulation and Regulation

It is expected that the same JFSC registration requirements and COBO consent considerations for an LP will be applicable to both an SLP and an ILP below.

Incorporated Limited Partnerships ("ILP")

The new proposed law, Incorporated Limited Partnerships (Jersey) Law 200-, establishing this new type of partnership is still in draft form but is based upon and is intended to complement the 1994 Law. In short, as the name suggests, this type of partnership will be incorporated. With incorporation will come certain important considerations and obligations for both the general partner and the limited partners analogous with those applicable when considering the relationships between companies, directors and shareholders (for example, a general partner must 'act honestly and in good faith with a view to the best interest of the ILP' which mirrors a director's statutory duty under the Companies (Jersey) Law 1991).

Key features

• Whilst an ILP will have separate legal personality (like an SLP) it will be incorporated (unlike an SLP);
• It will have unlimited capacity;
• Like a company, it will have perpetual succession;
• Like an LP (and an SLP), it must consist of one or more general partners and one or more limited partners;
• Like an LP (and SLP), any general partner will have unlimited liability for the debts of the ILP whereas the limited partners will be protected by limited liability provided that they have not participated in the management of the ILP;
• It is expected that the tax position for a ILP will be same as for an LP (and SLP) (see above);
• Confidentiality: it is expected that the position will be the same as for an LP (and an SLP) (see above);
• A limited partner will still be permitted to make its contribution via money, other property or the provision of services;
• There shall still be no limit on the number of limited partners;
• A limited partner will still be permitted to assign its interest (subject to the terms of the partnership agreement);
• It may be established for a specific term or with unlimited duration;
• No audit requirements;
• No requirement to file annual returns and no annual fee;
• Like a director, a general partner must 'act honestly and in good faith' and exercise 'care, diligence and skill';
• Like shareholders, the partners of an ILP can ratify a breach by a general partner provided all partners authorise and the ILP is able to discharge its liabilities as they fall due;
• Winding up: is to be governed by Regulations and therefore will be different from the provisions made for winding up LPs, SLPs and LLPs;
• It will own property in its own name;
• It will contract in its own and name and will be able to sue and be sued in its own name; and
• Due to its incorporated status, an ILP will be capable of committing a criminal offence.

Conclusion

There are subtle and important differences between the four types of partnership which will shortly be available in Jersey. The choice as always will be determined by taxation and the best interests of the potential investors.

Considering the popularity of limited partnerships with separate legal personality in other jurisdictions it is vital that Jersey improves upon its current offering if it intends to maintain its premier position in the financial centres market. The introduction of the new SLP and the new ILP will certainly help and thereby Jersey should continue to attract quality fund work as a result in the future.

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.