Following the registration by the Royal Court of Jersey of the Limited Liability Companies (Jersey) Law 2018 (LLC Law) there has been extensive consultation and preparation to support the establishment of limited liability companies in Jersey.
The LLC Law has been amended since being passed in December 2018 and further regulations have recently been passed which establish the appropriate framework to support LLCs in Jersey. The LLC Law is due to come into force on 1 September 2022 with the provisions of the LLC Law dealing with series LLC will come into force at a later date to be determined.
With the ability for LLCs to be incorporated in Jersey from 1 September 2022, Jersey will now look to build on the increasing attractiveness of Jersey to U.S. funds, fund managers and investors. In October 2021 Jersey Finance published research showing that the assets managed by promoters with U.S. origin have increased by 230% in the last five years. Appleby's experience would suggest that this figure has continued to grow since then.
WHY USE A JERSEY LLC?
As mentioned above, the LLC is being introduced to attract U.S. investment by creating a vehicle familiar to U.S. clients. Current vehicles available in Jersey have tended to align with English tax treatment and are not compatible with the "check-box" election system seen in the U.S. There is also the possibility that fund managers from outside the U.S. will use Jersey LLCs to attract U.S. investors.
In addition, Jersey is not in the European Union and therefore the full scope of The Alternative Investment Fund Managers Directive need not apply. This means that a Jersey based manager may not be required to comply with certain more onerous elements, such as reporting and disclosure of remuneration. To the extent a U.S. based fund manager has European or UK based investors then Jersey offers easy and relatively inexpensive access to the EEA through the National Private Placement Regimes (a well-recognised model).
OVERVIEW OF THE LLC
The main features of an LLC are:
- it has legal personality (so can sue and be sued and own assets in it's own name);
- it must have at least one member;
- it has limited liability for its members;
- an LLC can have managers to run it, akin to a director of a company (who need not be a member in the LLC) or the members can run the LLC themselves;
- the LLC agreement (the key governing/constitutional document of the LLC) will remain a private agreement and not be publicly available;
- treatment of Jersey LLCs will follow the U.S.-style "check box," allowing a Jersey LLC to elect how it is to be treated for tax and accounting purposes, depending on underlying tax analysis and advice; and
- Jersey LLCs will be able to create separate series of members, managers, interests or assets, each of which will have separate legal personality; although, as noted above such provisions will not be available on 1 September 0022. Such concept is similar to that already available in relation to Jersey cell companies (or the Irish ICAV or Luxembourg compartments).
Similar to Delaware and Cayman LLCs, a manager of a Jersey LLC will not owe any fiduciary duties to the LLC or any other member in exercising its rights or performing its obligations, other than to act in good faith with respect to the management of the LLC. The LLC Law also allows such duty of good faith to be expanded or restricted by the express provisions of the LLC agreement (i.e. the parties can agree the relevant duties within the LLC agreement rather than have such duties imposed on them by law). A breach of that duty may, subject to the terms of the LLC agreement, be authorised or ratified by all the members provided that the LLC is solvent on a cash-flow basis after the act or omission which constituted the breach. By making such duties of the manager subject to the LLC agreement, the amendments further bring the Jersey LLC position in line with other jurisdictions, notably (but not limited to) the U.S., thereby making the application of good faith and fiduciary duties a principle of freedom of contract.
Jersey LLCs will be treated as tax transparent for Jersey tax purposes. In addition, while there is no legal requirement for a member or manager to be resident in Jersey, Jersey LLCs will be within scope of the Economic Substance regime and will need to consider this regime carefully.
A comparison of some of the key points of interest between a Jersey LLC and a Delaware LLC can be found here.
The Limited Liability Companies (General Provisions) (Jersey) Law 2022 has also brought into the LLC regime a number of processes across from the Companies (Jersey) Law 1991, for example:
- a Jersey LLC is able to continue overseas and an overseas entity may continue into Jersey as a Jersey LLC;
- a Jersey LLC may merge and demerge;
- rules regarding takeover offers and minority buy-out rights apply to Jersey LLCs; and
- the accounts of a Jersey LLC are not required to be audited,
- the LLC agreement requires it; or
- the LLC is circulating, or has issued, a prospectus inviting members of the public to become a member of the LLC (there are certain exemptions to this to allow an LLC to fit into the Jersey fund regime without the requirement for a prospectus to be issued).
As is the position for Jersey companies, summary and creditors' winding up regimes will also apply to Jersey LLCs.
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.