Following their recent registration by the Royal Court of Jersey, the Separate Limited Partnerships (Jersey) Law 2011 and Incorporated Limited Partnerships (Jersey) Law 2011 came into force on the 20 April and 24 May respectively. The introduction of separate limited partnerships (SLPs) and incorporated limited partnerships (ILPs) adds an important structuring option to Jersey’s well established regulatory regime. The two new laws are closely modelled on the Limited Partnerships (Jersey) Law 1994 (the LP Law) and retain many of the administrative elements of that law, which remains in force. However, SLPs and ILPs are characterized by a number of important differences when compared to a limited partnership, and to each other.
Distinct legal personality: SLPs and ILPs are each a legal person separate from their partners and will be able to hold property, sue and be sued in their own name. However, an ILP is a body corporate whereas an SLP is not.
Perpetual succession: as a body corporate, an ILP has perpetual succession in contrast to a limited partnership which, generally, is immediately dissolved on the death, dissolution, bankruptcy or withdrawal from the partnership of the general partner (subject to a statutory power to reinstate). In light of this, the dissolution procedure for an ILP is more formal than that for a limited partnership and for a SLP.
Fiduciary duties: a general partner of an ILP owes statutory fiduciary duties to the partnership which are analogous to those owed by a director to a company. Breaches of these fiduciary duties can be sanctioned or ratified by all the partners in the partnership, subject to the partnership continuing to be able to discharge its liabilities as they fall due. A general partner of an SLP does not owe any statutory fiduciary duties to the partnership (although the partners of the partnership will have customary law duties).
Unlimited capacity: an SLP will be unincorporated but an ILP, as its name suggests, will be a body corporate and will have perpetual succession. Both SLPs and ILPs will have unlimited capacity.
Limited partner liability: Subject to certain limited exceptions (broadly similar to those set out in the LP Law), limited partners of ILPs and SLPs will retain the benefit of limited liability.
General partner liability: general partners of ILPs and SLPs will have unlimited liability for the debts of the relevant ILP or SLP. From a practical perspective, the liability of those persons managing the general partner can be limited by structuring the general partner as a limited company or limited partnership. In the case of ILPs, a general partner acts as agent of the partnership and is only liable for debts that have not already been satisfied out of the assets of the relevant ILP.
Jersey tax transparency: SLPs and ILPs will be treated for Jersey tax purposes in the same manner as limited partnerships established under the LP Law. Limited partners who are not resident in Jersey are only liable for Jersey income tax on Jersey source income, which will usually mean no Jersey income tax being paid by limited partners established overseas.
United Kingdom tax: initial opinions from UK counsel suggest that both ILPs and SLPs will be treated as tax-transparent for the purposes of UK income tax, corporation tax and stamp duty land tax. In the case of UK capital gains tax it is anticipated that only SLPs will be treated as transparent for tax on chargeable gains. However, specific UK tax advice should be sought on this matter.
Both ILPs and SLPs can be established quickly and efficiently by one or more general partners, and one or more limited partners in association. To establish the partnership, a declaration signed by each person who is to be a general partner of the ILP or SLP must be lodged with the Registrar of Limited Partnerships in Jersey. Following registration of the declaration, a certificate is issued by the registrar.
This process will usually be completed within 24 hours. All SLPs and ILPs must have a registered office in Jersey and maintain a register, which is not publicly available, holding the details of each limited partner and their respective interest in the partnership, a copy of the declaration and partnership agreement (including any amendments), and a statement of contributions agreed to be made by each limited partner and the date for the return of such contributions.
We anticipate ILPs and SLPs being utilized across a broad spectrum of transactions. Like limited partnerships before them, ILPs and SLPs offer a greater degree of operational flexibility than corporate structures (particularly where investment capital may be returned to investors), while still retaining the protection and certainty that limited liability and separate legal personality provides. Several other Jersey statutes have been updated to cater for the introduction of ILPs and SLPs. Of particular relevance are the updates to the Financial Services (Jersey) Law 1998 and related subordinate legislation which allows ILPs and SLPs to be used as vehicles for regulated and/or unregulated fund services business. This opens the door for ILPs and SLPs to be used in the full range of fund functionary capacities including general partner, manager or adviser.
ILPs and SLPs lend themselves well to a variety of structures, including:
- all types of investment funds including vehicles to be used for carried interests or performance fees;
- asset-holding structures;
- tax-transparent joint venture arrangements;
- family holding structures; and
- structured finance transactions.
Of the two vehicles, it is anticipated that demand for ILPs will be stronger, particularly from parties engaging in complex cross border financings or investment structures. The status of an ILP as a body corporate means it provides a high degree of certainty and recognition under private international law.
James Gaudin is a partner of Appleby in Jersey, with corporate and commercial as his practice area
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