Introduction
Limited Liability Companies ("LLC") are a familiar structuring tool for US managers and investors, and the introduction of the Jersey LLC is part of a strategy by the jurisdiction to increase its appeal to the US market.
The key advantage of the LLC is that its owners have limited liability protection – their personal assets can be protected from the debts and liabilities of the LLC. In financial services, both the Cayman Islands and the US state of Delaware have developed popular LLC regimes that are widely used for investment funds, for financing purposes, or in holding company structures.
The introduction of the Jersey LLC, and amendments to the rules around Jersey LLCs, is aimed at the US market, as part of a strategy of making the Island relevant to US managers and investors. Jersey Finance – the industry's promotional body – report that since it opened its office in New York, the number of US-originated fund structures has grown 61%, while the value of fund assets under management serviced in Jersey has risen by 22%, according to Monterey.
Jersey LLCs operate under similar rules and have similar advantages to the Cayman and Delaware models that will be familiar to the US professional services environment – and are able to market to EU investors under the AIFMD third country private placement rules, and operate within Jersey's leading professional services and regulatory infrastructure.
Although US LLCs are used by SMEs as well as international organisations, the focus of the Jersey LLC is on financial services – for use as a carried interest vehicle or feeder vehicle; to act as a general partner or manager; or for use by corporates as SPVs for financing purposes, joint venture vehicles or as the ultimate holding company for large public company structures.
This short note explores some of the basic features of the Jersey model – which differs slightly from the existing onshore and offshore versions.
Ten things to know about Jersey LLCs:
Limited Liability – members of the LLC benefit from limited liability protection, meaning that although they are liable for their contribution, beyond this they cannot be held personally liable for any debts or losses of the LLC (unless they expressly agree otherwise in the LLC agreement).
Separate legal personality - LLCs have their own separate legal personality, and so they can own assets in their own right, sue and be sued.
Tax – a Jersey LLC is tax transparent for Jersey taxation purposes, but it is envisaged that it can elect to be treated as either a partnership or a company for US purposes. From a UK tax perspective, the existing Jersey LLP has historically been a popular choice for those wishing to benefit from the features of separate legal personality, yet retaining tax transparency, none the less LLCs are aimed at facilitating investment through familiar Jersey structures by US clients / promoters.
Flexibility – the LLC agreement is the main constitutional document of the LLC, and is an agreement in writing setting out the rights and obligations of the manager and members. It offers a large degree of freedom to decide the terms upon which the LLC operates. For example, the LLC agreement can confer enforceable rights on a third party, and in the future may be drafted to create separate series which will be similar to protected cells in a company, each with their own assets and liabilities. Under the LLC Law, there is no requirement for an LLC agreement to be made publicly available and so the terms upon which the LLC operates remain private.
Managers (rather than directors) - can be appointed to manage the affairs of the LLC, or if preferred, the members can do this themselves. An LLC may be formed with a sole member. Managers are not subject to fiduciary duties unless set out in the LLC agreement, but will be subject to a baseline duty of good faith and with the additional flexibility of a member approval procedure.
Europe - Subject to the usual JFSC fund permissions, an LLC will be able to market to EU investors under the Alternative Investment Fund Managers Directive (AIFMD) third country private placement rules, but a Jersey LLC is not subject to the UK's City Panel Takeover Code.
Regulated corporate services provider - LLCs must have a registered office in Jersey and this will usually be provided by a regulated Jersey corporate services provider (a "CSP") appointed to administer the LLC. The CSP will also usually supply a secretary (to fulfil the requirement under the LLC Law to have a secretary) and a 'nominated person' (for the purposes of the Financial Services (Disclosure and Provision of Information) (Jersey) Law 2020 (the "Disclosure Law")).
LLCs must register with the JFSC and disclose beneficial ownership and controllers – the registration process is quick, with fees varying according to whether a 2 hour or a 5 day service is required. LLCs are subject to the usual requirement for a 'COBO consent' under the Control of Borrowing (Jersey) Order 1958, which will be issued upon registration. Like companies and partnerships, LLCs must comply with the provisions of the Disclosure Law in relation to the disclosure of ultimate beneficial owners and controllers to the JFSC.
AML/CFT regime – if LLCs carry on certain prescribed activities, they must register with the JFSC and comply with relevant provisions of Jersey's AML/CFT regime. Generally, the CSP would be appointed as the AML service provider to the LLC to ensure such compliance.
Economic Substance – if LLCs conduct certain "relevant activities", they must ensure that they meet the economic substance test set out in the Taxation (Companies – Economic Substance) (Jersey) Law 2019, but there is no requirement for the inclusion of Jersey resident members or managers.
The new Jersey LLC follows in the footsteps of similar legislation introduced in other offshore jurisdictions, such as the Cayman Islands and Bermuda, where Walkers has practised for many years and where we have significant experience in the structuring and use of LLCs.
We practice Bermuda, British Virgin Islands, Cayman Islands, Guernsey, Irish and Jersey law from an international network of ten offices across Europe, the Americas, Asia and the Middle East. For more information, please get in touch with your usual contact at Walkers or any of the contacts in your region listed below.
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.
