04 January 2019

Coming to America: Jersey approves US-style LLCs

Jersey’s decision to allow the creation of limited liability companies (LLCs) will allow the island to attract more US-based clients and offer more flexibility than the current partnership status based on English law. Here, partner James Willmott and associate David Patterson examine the options.


In a move aimed at catering to Jersey's growing pan-Atlantic business, in September 2018, the States of Jersey approved a new law (the "Law") that, when enacted, will permit US-style limited liability companies ("LLCs") to be created in Jersey.

The Law, which has been greeted warmly by Jersey's finance industry, is the result of a sustained period of government research and consultation, with Carey Olsen happy to have been involved in its development. It follows the recent introduction of equivalent legislation in US-local offshore jurisdictions and evidences Jersey’s continuing status as a leading international financial centre.

What is an LLC?

It depends - part of the appeal of LLCs is that they can differ completely from one another, with the choices available meaning that LLCs are used as the vehicle for simple businesses, large US public holding companies and SPVs in finance structures. For example:

  1. LLCs have limited liability and are able to contract and hold assets in their own right but can (by election) be classified as either a partnership or company for tax and accounting purposes;
  2. management powers can either be vested in an LLC's members, similar to partners in a partnership, or managers, who like directors in a company can but do not need to be members of the LLC itself;
  3. like a partnership, the relationship between members and (as applicable) managers is governed by the terms of a private LLC agreement rather than publicly registered articles; and
  4. Jersey LLCs will be able to create 'series' within themselves, ring-fencing assets and liabilities (as well as members and managers) in a manner similar to cell companies without the need to create an entirely separate entity.

None of these features are necessarily 'new' when considered in isolation, but where historically a preference for your vehicle to have one of the features described above would mean compromising on another, LLCs will permit you to have the 'best of all worlds'.

This flexibility is precisely the reason they have become so attractive: according to the 2015 IRS Statistics of Income Bulletin, some 2.3 million LLCs were registered, with LLCs representing over two-thirds of entity types and being a predominant vehicle of choice for the 12th consecutive year.

Why does Jersey not already have LLCs?

Corporate vehicles available in Jersey tend to mirror those available in England and Wales, where the courts and HMRC classify an entity strictly according to its characteristics rather than having a US-style 'check-box' election system. The UK's legislative response to the demand for something akin to LLCs (i.e. separate legal personality but treated as transparent for tax purposes) was the creation of limited liability partnerships ("LLPs"). Jersey has, to date, mirrored that approach, though it should be noted that England and Wales treats its own LLP differently to those from other jurisdictions for tax purposes.

Why introduce LLCs?

There are a number of motivations but, as the title of this article would suggest, the main driver behind the Law would appear to be the growing amount of business that Jersey receives from its North American clients. According to a 2016 report prepared by Jersey Finance, half of all investors in Jersey funds are located outside of Europe and one third of the total asset value originates in North America. With regard to the net value of fund assets by location of ultimate investors and assets, the value attributed to North America increased 162% from £47bn in 2011 to 76bn in 2014.

Having a vehicle available in Jersey that is familiar to US clients, rather than offering the closest jurisdictional equivalent, therefore makes sense. This is particularly the case where the vehicles that have historically been available are often not as flexible as LLCs. LLPs, for example, require a minimum of two partners as opposed to one member, must be formed to conduct business with a view to a profit as opposed to simply any lawful purpose, and require that each partner make a contribution and have a partnership interest as opposed to LLCs, which may admit members without either.

Are there any downsides?

None that should not already be known to users of LLCs. We would suggest the primary disadvantage is that not all jurisdictions, including England and Wales for the reasons explained above, recognise LLCs as transparent vehicles for tax purposes. Whilst there have been instances where the UK has recognised LLCs as transparent, the courts and HMRC have stated this is firmly on a case-by-case basis.

For that reason, the LLC is noted as being an entity that is not (currently) aimed for use where the vehicle is to have direct involvement with the UK. Instead, LLCs are aimed at the US and other jurisdictions where the tax-elected nature of LLCs is recognised and familiar. However, given that HMRC has confirmed it will consider the specific circumstances of any given case, it should be noted that the flexibility of the Law means that the LLC agreement could potentially be drafted in a way that meets all UK partnership criteria with a view to obtaining HMRC's blessing to be treated as transparent. Until that is available, it is anticipated that Jersey LLCs will predominantly be used elsewhere, but will be well-placed to take advantage if the UK changes its position.

How will LLCs be regulated in Jersey?

It is early days, but based on current draft legislation LLCs will be required to register with the Jersey Financial Services Commission ("JFSC") and comply with legislation and rules regarding the disclosure of ultimate beneficial owners and controllers to the JFSC. It is also envisaged that LLCs will be required to engage a Jersey-based financial services provider and therefore that Jersey’s AML/CFT regime would apply, as well as complying with certain other local legislation applicable to local and foreign bodies corporate. The provision of financial services to an LLC is also intended to be a regulated financial activity under the Financial Services (Jersey) Law 1998. Those using Jersey LLCs should also be mindful of meeting the substance requirements of forthcoming legislation intended to deal (amongst other things) with the ongoing BEPS project.

None of this should be unfamiliar to those who already deal with Jersey, as it echoes the approach for other Jersey entities. The message is that Jersey has a reputation as a highly regulated and compliant jurisdiction, and LLCs will need to fit within that framework.  As for an LLC conducting any form of regulated financial services itself, this is still under review but it is likely that LLCs will follow the paths of other vehicles in Jersey. We expect the funds space in particular to be a priority for legislation.

Next steps

The Law has been sent to the Privy Council for Royal Assent. In the interim, we understand that government is currently engaging with the Jersey Registry for the purposes of including LLCs on the public register and with the Law Draftsman for supporting legislation, the priority being winding up regulations and consequential amendments to financial services legislation.


An original version of this article was first published by Accountancy magazine and Accountancy Daily, December 2018.

© Carey Olsen 2019.

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