Incorporating a limited liability partnership in Guernsey
The Limited Liability Partnerships (Guernsey) Law, 2013 (the LLP Law) has been in force since 13 May 2014. A limited liability partnership (an LLP) is formed by being incorporated under the LLP Law and registered with the Registrar of Limited Liability Partnerships (the Registrar) by the submission of an incorporation statement which includes details of all the proposed members of the LLP, the name of the LLP, the name and address of its resident agent (if any), the nature and principal place of its business and the address of its registered office (which must be in Guernsey) together with the prescribed fee. Notification of any change of these particulars must be filed with the Registrar within 21 days of the date of the change.
Key features of a Guernsey LLP
LLPs combine the flexible features of traditional general partnerships with the benefit of limited liability for its members akin to that enjoyed by the shareholders of a company. The key features of an LLP established under the LLP Law are set out below:
Separate legal personality
- An LLP is a body corporate and therefore has legal personality separate from its members;
- an LLP owns the business's assets and is liable for its own debts;
- a change in members of an LLP does not affect its continuing existence; and
- a member is not liable for any debts of the LLP or any other member by virtue solely of his membership of the LLP.
- Business of LLP: an LLP may undertake any lawful business within Guernsey or elsewhere and has unlimited capacity;
- Organisational flexibility: unless the membership agreement provides otherwise, every member can take part in the conduct and management of the LLP;
- Contributions: working capital may be provided by members to the LLP by way of capital or loan. There are no minimum capital contributions required from members;
- Migration: the LLP Law permits the registration of an overseas LLP as a Guernsey LLP and the transfer of a Guernsey LLP to overseas. The migration provisions for overseas LLPs to be registered in Guernsey on a reciprocal basis will be welcomed by some English or other EU-based investment management LLPs which want to move their seat of business outside the EU. Such moves are of particular interest in the context of the Alternative Investment Fund Managers Directive (AIFMD) where certain EU-based managers of alternative investment funds are required to comply with additional regulation imposed by the AIFMD in such areas as reporting, disclosure, custody, risk management, portfolio management, delegation and leverage in respect of investment funds they manage. Depending on where its investment funds are domiciled and marketed, it is possible that a move to Guernsey would put an investment manager outside the scope of the AIFMD; and
- Conversion: the LLP Law provides for the conversion of general partnerships to LLPs. There is provision for the States of Guernsey to amend the LLP Law by Ordinance for the conversion of other corporate or unincorporated bodies into LLPs, and conversely, LLPs into other bodies and for the amalgamation of LLPs.
- An LLP must have two or more members admitted in accordance with the members' agreement;
- all members are entitled to share equally in the profits of the LLP and may take part in the conduct and management of the LLP (unless the members' agreement provides otherwise);
- members may be natural persons or bodies corporate;
- in principle, every member acts as agent of the LLP with power to bind the LLP (though there are limits, for example, where that member is not in fact authorised to act and the person dealing with that member either knows that he does not have the requisite authority or believe him to be a member of the LLP); and
- subject to the unanimous agreement of the members to exclude their application, members can raise unfair prejudice and derivative claims in the situations where they believe the LLP is being run in a manner which is unfairly prejudicial to their interests.
As regards Guernsey law, although Guernsey LLPs will have separate legal personality and may contract in their own name, they are deemed to be tax transparent so not liable to tax themselves and each member is liable for his own tax on receipts.
LLPs are not necessarily targeted at a particular use or profession but LLPs are commonly used as investment management vehicles and as structures for knowledge-based professions such as accountants, lawyers, doctors, patent attorneys, brokers and translators, as well as for joint ventures – again, where joint management is contemplated. In some jurisdictions, where certain professionals are prohibited by law from incorporating as companies, the LLP has proved to be an attractive option. The UK introduced LLPs in 2000 with the Limited Liability Partnerships Act 2000. Jersey has had LLPs since 1997 and made refinements in January 2013.
LLP members' agreement and record keeping
Every LLP is required to have a members' agreement in writing as to the affairs of the LLP and the conduct of its business. The members' agreement is binding on the LLP and its members, their assigns and upon subsequent members in the same manner as if those persons had executed it themselves.
As with Guernsey limited partnership agreements, the members' agreement does not need to be filed with the Registrar but must be kept at the LLP's registered office along with copies of:
- the register of members;
- the details of any resident agent (if any);
- accounting records which reflect the financial position of the LLP;
- minutes of members' meetings; and
- any documents filed with the Registrar.
The register of members may be inspected during normal business hours by any member without charge and any other person on payment of a prescribed fee. A copy of the register of members may also be requested on payment of a fee which must be sent within five working days of the request.
An LLP is required to submit to the Registrar an annual validation containing information current as at 31 May together with a declaration of compliance before 30 June each year.
Winding up, dissolution and striking off of a Guernsey LLP
An LLP may be wound up:
- on the occurrence of an event specified in the members' agreement; or
- if the members unanimously agree that it should be wound up or dissolved; or
- if the court makes an order for the winding up of the LLP.
The court may, on the application of, among others, a member or creditor of the LLP, order a winding up, including where the court is of the opinion that:
- the LLP is insolvent;
- it is not reasonably practicable to carry on the business of the LLP in accordance with the members' agreement;
- the business of the LLP is being carried on in a manner which is unfairly prejudicial to the members' interests (or any of them) or an actual or proposed act or omission of the LLP is (or would be) prejudicial (unless the members have all agreed to exclude such rights);
- where there is fraud;
- it is desirable that the LLP should be wound up; or
- it is just and equitable to do so.
An LLP may be struck off the Register if it:
- is defunct; or
- only has one member; or
- fails to deliver to the Registrar an annual validation when due; or
- fails to respond to an information request made by a resident agent within the time specified; or
- has generally, in the opinion of the Registrar, committed persistent or gross contraventions under the LLP Law.
The addition of LLPs to Guernsey's suite of available corporate structures provides a flexible arrangement that can be used in a wide range of industries and applications and further enhances Guernsey's position as a re finance centre.
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.