Jersey and Guernsey Limited Partnerships

This Client Briefing outlines the key advantages of Jersey and Guernsey Limited Partnerships compared to English Limited Partnerships and Scottish Limited Partnerships.  There are a number of general advantages in relation to English Limited Partnerships which are of primary consideration for funds as set out in this first table.

 

 

English Limited Partnership

 

Jersey/Guernsey Limited Partnership

Flexibility and Certainty of Partnership Laws

English Limited Partnerships are governed by a partnership law dated 1907.

The Jersey and Guernsey Limited Partnerships Laws provide a modern and comprehensive framework for the establishment and operation of limited partnerships.

Participation in Management

If a limited partner participates in the management of the limited partnership, it will lose the protection of limited liability.

The Jersey and Guernsey Limited Partnerships Laws specifically allow limited partners to take some role in the management of the limited partnership without losing the protection of limited liability, including approving the purchase or sale of assets of the Limited Partnership and the creation of any obligation of the Limited Partnership, acting as an agent of the limited partnership and acting as a director of the general partner. Hence, limited partners can approve investment recommendations as part of an investment committee.

Disclosure of Limited Partners

The identity of limited partners must be disclosed on a public register.

There is no requirement to disclose the identity of limited partners on any public register.

General Partner's Share

To constitute an English Limited Partnership, the general partner must receive some share of the profits.

There is no requirement for the general partner to receive any share of profits to constitute a Jersey or Guernsey Limited Partnership.

Capital Distributions

On an insolvency of an English Limited Partnership, limited partners remain liable for the return of any distributions made to them in respect of capital contributions to the partnership.

 

There is no liability on limited partners to repay capital distributions unless the partnership is insolvent at the time of the distribution and even if it is insolvent at that time, the liability to repay capital distributions remains only for a period of 6 months.

Limited Partners as Creditors

Limited partners which make loans to the partnership in connection with the partnership business will rank behind third party creditors on any insolvency of the partnership.

 

A limited partner which makes a loan to the partnership or otherwise has a claim against the partnership will rank equally with third party creditors as a creditor of the partnership in respect of such claim.

Requirement for FSMA Registered Operator

An English Limited Partnership which constitutes a collective investment scheme must in certain circumstances appoint an FSMA registered operator to carry out certain functions on its behalf.

 

There is no requirement for a Jersey or Guernsey Limited Partnership which constitutes an investment fund to appoint an FSMA registered operator.

 

Legal Personality

An English Limited Partnership does not have separate legal personality.

A Jersey or Guernsey Limited Partnership does not have separate legal personality. However, a Guernsey limited partnership can elect to have separate legal personality and a Jersey Limited Partnership can be established as a separate Limited Partnership which also has separate legal personality (see below).

 

Tax Transparency

An English limited partnership is tax transparent.

 

Jersey and Guernsey limited partnerships are tax transparent.

 

VAT

Fees charged by an English general partner to the limited partnership may be subject to irrecoverable VAT.

 

Fees charged by a Jersey or Guernsey managed and controlled general partner to the partnership will not be subject to VAT.

Income Tax

Fees charged by an English general partner to the limited partnership may be subject to UK income tax.

Fees charged by a Jersey or Guernsey managed and controlled general partner to the partnership will not be subject to income tax in Jersey, Guernsey or the UK.

Filing Accounts

Annual accounts may need to be filed publicly with the registrar.

 

No filing of accounts is required.

In addition, a Jersey Separate Limited Partnership ("JSLP") or a Guernsey Limited Partnership which elects to have legal personality ("GSLP") has legal personality and tax transparency and therefore provides an alternative to the Scottish Limited Partnership ("SCLP") which has been relatively widely used to date for carried interest vehicles.

As offshore lawyers operating in a number of jurisdictions; we are often asked to compare and contrast structures available in other jurisdictions with those which are available to us.  We consider that a JSLP or GSLP has certain advantages over an SCLP and highlight the key areas below. 

 

SCLPs

JSLPs

VAT / Goods and Services  Tax

If the SCLP is managed by a separate manager rather than its general partner the management fee would be subject to a VAT charge. 

Fees charged by a Jersey  or Guernsey managed controlled and general partner to a GSLP and JSLP will not be subject to VAT, except to the extent which fees are attributable to UK real estate. 

 

Income Tax / Capital Gains Tax

Income and gains of the SCLP are likely to be treated as remitted to the UK.

UK taxpayers qualifying for the remittance basis of taxation may find it easier to prevent a remittance of income and gains of the JSLP or GLSP from being treated as remitted to the UK.

 

UK Tax Returns

Requirement for a Unique Tax Return number to be submitted with a SCLP's UK tax return in respect of each partner.  Certain industry groups are lobbying to change the stance on this (including the British Private Equity & Venture Capital Association).

 

If the JSLP or GLSP has no activities in the UK and does not file a UK partnership return, it is expected that non-UK resident partners will not need to notify Unique Tax Return numbers.

Inheritance Tax

An interest in an SCLP is likely to be regarded as a UK situs asset for UK inheritance tax purposes.

There is no concept of inheritance tax in Jersey so Jersey resident partners of a JSLP or GLSP will not be subject to inheritance tax.

 

An interest in a JSLP or GLSP will normally be considered a non UK situs asset for inheritance tax purposes.

 

Use by UK resident non-domiciled individuals ("URND")

There is debate as to whether an SCLP is a safe vehicle for a URND to invest through i.e. in the case of carry in a non-UK asset.

 

URND are more likely to have a preference for using a non-UK limited partnership such as a JSLP or GSLP.

Accounting Standards

International Financial Reporting Standards apply to SCLPs.

International Financial Reporting Standards are not applicable.  JSLPs and GLSPs must keep accounting records that are sufficient to show and explain its transactions and are such as to disclose with reasonable accuracy at any time in the financial position.

 

Filing / Auditing

In certain circumstances, annual accounts of SCLPs will be required to be audited and filed with the Registrar (see 10. below regarding the Regulations which broadly apply to partners in a partnership).

 

There is no requirement to appoint an auditor, unless otherwise required by contract or regulation.

 

Similarly, there are no requirements to have accounts audited, filed or made available for public inspection.

 

 

Requirements of the Partnership Accounts (Amendment) Regulations 2010 (the "Regulations") pursuant to EU Accounting Regulations

SCLPs fall under the definition of  'qualifying partnerships' under the Regulations and so are required to meet the audit requirements of the Regulations which are not yet in force but are likely to be in force during the course of 2011.

JSLPs or GLSP do not fall under the definition of 'qualifying partnerships' under the Regulations and so are exempted from complying with the Regulations.

 

 

Assignment of Limited Partners Interests

An advert must be placed in the Edinburgh Gazette in order for an interest of an SCLP to be assigned and such assignment will not take effect until such notice has been published.  The public nature of an assignment procedure may be unattractive to limited partners of an SCLP.

 

A limited partner may assign an interest in the partnership if the agreement permits such assignment.  In practice, this will frequently be the case, subject to general partner consent.

 

Return of Limited Partners Contribution

Limited partners of an SCLP may not receive back their capital contribution until the SCLP is dissolved.

A payment representing a return of any part of the limited partner's contribution may be made if at the time of and immediately following the payment the Limited Partnership is solvent.

 

Acting as both a Limited Partner and General Partner

It is not possible for a person to be both a general partner and a limited partner at the same time in the same SCLP.

 

A person may be a general partner and a limited partner at the same time.

 

About Ogier

Ogier provides practical advice on BVI, Cayman Islands, Guernsey, Jersey and Luxembourg law through its global network of offices. Ours is the only firm to advise on these five laws. We regularly win awards for the quality of our client service, our work and our people.

Disclaimer

This client briefing has been prepared for clients and professional associates of Ogier. The information and expressions of opinion which it contains are not intended to be a comprehensive study or to provide legal advice and should not be treated as a substitute for specific advice concerning individual situations.

Regulatory information can be found at www.ogier.com

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