08 February 2013
Revised and Improved Jersey LLPs Now Available
Jersey has updated its LLP law so that it has now removed a £5,000,000 bond requirement, which had previously discouraged the use of Jersey LLPs. Creditor protection is now provided through annual solvency statements. The revised law now provides Jersey with a full suite of limited partnership vehicles each with helpful unique features.
Old LLP Law
In 1997 Jersey enacted a limited liability partnerships law with a view to enabling the use of Jersey limited liability structures by professional firms and other partnerships in which the partners take an active management role.
In order to provide protection to the creditors of Jersey LLPs, the 1997 law required a Jersey LLP to maintain a £5,000,000 bond from a bank or other financial institution, which would pay out on the LLP's insolvency. That requirement proved expensive and as a consequence Jersey LLPs have not to date been viewed as an attractive choice.
Revised LLP Law
Following an amendment to the 1997 law, which came into effect on 16 January 2013, the requirement for the £5,000,000 bond has been removed. Instead, creditor protection is achieved through the filing by an LLP of an annual solvency statement in a specified form. Withdrawals of LLP property or its value by partners or former partners are (as a general rule) only permitted in circumstances where a solvency statement has been filed in the 12-month period immediately preceding the withdrawal.
The solvency statement is a 12-month forward-looking statement, and is similar to the solvency statements already used under the Jersey Companies Law in connection with distributions. The amendment therefore brings creditor protection for LLPs in line with the provisions that apply to Jersey companies, and will be familiar to those who already use Jersey as a corporate destination.
It is hoped that the changes summarised above, coupled with Jersey's internationally recognised regulatory framework and its proximity to London and the financial centres of continental Europe, will result in Jersey LLPs being used for a variety of purposes, including private equity, asset holding and professional services structures.
A consequential amendment to the Jersey income tax law, which came into effect on the same date as the amendment to the 1997 law, confirms that profits and gains arising from the international activities of a non-Jersey resident partner in a Jersey LLP are not subject to taxation in Jersey. Jersey also recognises limited partnerships, incorporated limited partnerships and separate limited partnerships.
Please note that this briefing is only intended to provide a very general overview of the matters to which it relates. It is not intended as legal advice and should not be relied on as such.
© Carey Olsen 2013