HM Government of Gibraltar is commencing legislation on 24 March 2016, providing for Limited Liability Partnerships and this is the latest addition to the expanding suite of Gibraltar products that can now be offered.
The Limited Liability Partnership is a very flexible vehicle and has been primarily designed with professional service providers in mind, whose partners may potentially be at risk from the careless or accidental negligence of a colleague. However the Limited Liability Partnership is also available in respect of any type of trade, profession and occupation. A further benefit is that any agreement that may be in place between the members remains confidential between the members and the Limited Liability Partnership and no disclosure or registration requirements apply. Additionally the Limited Liability Partnership is also regarded as fiscally tax transparent and members can undertake management functions without forfeiting their limited lability protection.
A Limited Liability Partnership is not legally a partnership. It, like a company, is a corporate body with a continuing legal existence independent of its members, formed where two or more persons come together for the purposes of carrying on a lawful business, with a view to profit. Generally, partnership law does not apply to Limited Liability Partnerships. A Limited Liability Partnership has the legal capacity to do anything that a natural person can do and exists wholly independently of its members and changes to its membership structure. It has an open ended and indefinite existence, and will continue until it is wound up.
The Limited Liability Partnerships Act 2009 (the "Act") is a framework piece of legislation, containing details of incorporation, membership and taxation and will be the main point of reference. HM Government of Gibraltar has supplemented the Act with the Limited Liability Partnerships (Application of Companies Act 2014 and Insolvency Act 2011) Regulations 2016 (the "Regulations"), to regulate the management and winding-up of Limited Liability Partnerships. The Regulations operate by reference to the Companies Act 2014 and the Insolvency Act 2011 by applying or modifying relevant sections of those Acts to Limited Liability Partnerships. The Regulations need to be read with the relevant Act as together they effectively create an Act specifically for Limited Liability Partnerships.
Members of a Limited Liability Partnership are free to agree between themselves the terms of the relationship between them. The internal affairs of a Limited Liability Partnership (the rights and duties between the Limited Liability Partnership and its members) are ordinarily set out in a Limited Liability Partnership agreement. Even though the Act and the Regulations envisage that a Limited Liability Partnership agreement will be the norm, there is no requirement for this to be in place. In lieu of having an agreement, there are a number of "default" provisions prescribed by the Regulations(dealing, for example, with management, profit sharing and contribution on winding-up), which apply. The "default" provisions are likely to produce unsatisfactory results except in the most basic and straightforward arrangements.
Under the terms of the Act, members are given limited liability without having to issue share capital, whilst having no restriction on the number of members who may form part of a Limited Liability Partnership. By analogy, in the case of a General Partnership, all partners are liable for its debts and obligations and in the case of a Limited Partnership, limited partners are protected by limited liability provided that they do not undertake any management functions. All members in a Limited Liability Partnership may undertake management functions without losing their limited liability protection. However, a Limited Liability Partnership may also be appropriate for a partnership where some partners are not actively involved.
In respect of liability, the members of a Limited Liability Partnership shall have such liability to contribute to its assets in the event of its being wound up as is provided for by virtue of the Act. The Act is silent on this particular point but the Regulations, which are made under the Act, provide that unless the Limited Liability Partnership agreement provides that the liability of a member is unlimited, the liability of a member is limited to any liability expressly provided for in the Limited Liability Partnership agreement. The basic principle, and frequently the driving factor of a conversion to limited liability, is that the liability of a member is limited to the assets that he puts into the Limited Liability Partnership, his capital contribution and undrawn profits, unless the members have agreed otherwise. However, it is worth remembering that, as a member of a Limited Liability Partnership, an individual's liabilities are "limited" rather than becoming non-existent.
From a tax perspective, a corporate member of the Limited Liability Partnership could be subject to corporation tax on its share of the profits but this is dependent on individual circumstances. A Limited Liability Partnership must keep adequate accounting records and prepare and file annual accounts with the Registrar of Companies. A Limited Liability Partnership is required to prepare and cause to be prepared, like accounts and reports as would be required under the Companies Act 2014 if the Limited Liability Partnership were a company to which the account and audit provisions of the Companies Act 2014 would apply.
The introduction of the Limited Liability Partnership is exciting news for Gibraltar and will complement its existing product range well. This will significantly increase the ability of local practitioners to provide first class solutions to their local and international clients, thereby creating new and increased business flows for Gibraltar.
A more detailed overview on Limited Liability Partnerships will be published by ISOLAS shortly.
Jonathan Garcia is a Senior Associate at ISOLAS and works within both the Funds and Investment Services and Corporate practices. He advised HM Government of Gibraltar on the introduction of Limited Liability Partnerships into Gibraltar law. He also sat on the Company Law Reform Committee set up by the Finance Centre Council, which led to a full-scale review of Gibraltar's company legislation. For more information about Jonathan, please log on to http://www.gibraltarlawyers.com/people/jonathan-garcia
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