Limited partnerships in Jersey are governed by the Limited Partnerships (Jersey) Law 1994, as amended (the Law).
The main feature of limited partnerships, as the name suggests, is the limited liability afforded to the limited partners. In addition, the Law is very flexible, such that the partners in a Jersey limited partnership are free to agree the terms attaching to the structure and operation of the partnership between them. For this reason, Jersey limited partnerships are very popular vehicles and common uses include:
- investment funds and, in particular, private equity and venture capital vehicles;
- real estate holding, development and investment structures;
- asset holding vehicles for families;
- profit-sharing, employee incentive or carried interest vehicles.
Limited partnerships are also often used for the purposes of tax and financial planning because they are tax transparent, ensuring tax neutrality for the limited partners who are subject to tax in accordance with the rules of their own jurisdictions (see Taxation below).
A limited partnership which attracts no regulatory overlay can be established on a same-day basis or otherwise within 1-2 working days. The limited partnership must comprise at least one general partner and one limited partner. In order to register a limited partnership, the general partner must submit a signed declaration of limited partnership containing certain prescribed details, along with duly completed establishment forms and the registration fee, to the Registrar of Limited Partnerships (the Registrar). Upon registration of a limited partnership, the Registrar will issue a registration certificate and a consent under the Control of Borrowing (Jersey) Order 1958 for the creation of partnership interests in the limited partnership.
Depending on the nature of the proposed activities of the limited partnership (see Regulatory treatment below), there may be a regulatory requirement to have a Jersey-based general partner although the Law itself does not require a general partner to be resident or incorporated in Jersey. There is no restriction on the number of limited partners in a Jersey limited partnership.
There is no requirement to file details of the names of the limited partners in the partnership declaration or establishment forms, nor do limited partnerships file annual returns with the Registrar. The identity of the limited partners in a Jersey limited partnership is not, therefore, a matter of public record. Furthermore, whilst limited partners have a right to inspect and make copies of the limited partnership records, these are not subject to public inspection and there is no requirement to file the partnership agreement with the Registrar.
The general partner is liable for all the debts and obligations of the limited partnership. The limited partners' liability is limited to the amount they have committed to contribute to the partnership. A limited partner may lose its limited liability where such limited partner participates in the management of the limited partnership in its dealings with third parties who reasonably believe the limited partner to be the general partner of the partnership. Helpfully, however, there are extensive safe harbour provisions in the Law comprising a non-exhaustive list of activities which a limited partner may participate in or carry out and which do not constitute participating in the management of the partnership, including:
- being an agent or employee of the limited partnership or the general partner;
- acting as a director, officer or shareholder of the general partner;
- consulting with and advising the general partner with respect to the activities of the limited partnership;
- approving or disapproving an amendment to the partnership agreement;
- voting on or otherwise approving or disapproving certain matters including: the dissolution or winding up of the limited partnership, dealing in any asset of the limited partnership, a change in the nature of the activities of the limited partnership, the admission, removal or withdrawal of a general partner and the continuation of the limited partnership thereafter.
Flexibility in contributing and returning capital
A limited partner can contribute capital to the limited partnership in the form of money, any property or services. The Law does not prescribe how contributions are made, drawn down or returned to limited partners during the life of the limited partnership and the partners are free to agree such terms, as well as those relating to distributions from the partnership within the partnership agreement. Distributions from the partnership are made subject to a solvency test. It should be noted that the Law provides for a claw-back mechanism, which applies for a period of six months following distribution should a partner receive a distribution at a time when the partnership is insolvent or became insolvent as a result of the payment.
Jersey limited partnerships are commonly used as private funds or public collective investment funds. In such cases, the requirements of the Collective Investment Funds (Jersey) Law 1988 (the CIF Law), the Jersey Private Fund Guide (JPF Guide) and the Financial Services (Jersey) Law 1998 (the FSJL) will be relevant and advice should be taken at an early stage in the structuring of the fund. Accordingly, an application will need to be made for the issue of a certificate or consent in connection with the partnership pursuant to the CIF Law or, as applicable, JPF Guide and the general partner and other Jersey-based service providers to the limited partnership may need to register for the conduct of fund services business in Jersey pursuant to the FJSL, unless exemptions to such registration apply. For further information on the Jersey regulatory options for funds please see our briefing here https://www.ogier.com/publications/jersey-investment-funds-regulatory-options.
Limited partnerships are not legal persons and are therefore not taxable entities for the purposes of Jersey tax. Limited partners are subject to tax in accordance with the rules of their country of residence. Accordingly, non-Jersey tax resident limited partners in a Jersey limited partnership are not subject to Jersey income tax or any withholding tax on their share of partnership profits or gains arising from business or investment activities carried on outside Jersey. This is one of the reasons why limited partnerships are popular investment fund vehicles for tax-exempt institutional investors.
Jersey Economic Substance Requirements
Jersey limited partnership do not fall within the scope of the Taxation (Companies – Economic Substance) (Jersey) Law 2019, which came into force on 1 January 2019, (the Substance Law). Accordingly, the requirements of the Substance Law currently do not apply to any limited partnerships, regardless of whether or not they are used as investment funds, investment structures, holding vehicles or carried interest vehicles.
However, if a Jersey tax resident corporate general partner of a Jersey limited partnership was conducting a 'relevant activity' for the purposes of the Substance Law, such as ‘fund management business’, such general partner would fall within the scope of the Substance Law and would need to ensure that it is governed and operated in a way which complies with the Substance Law, namely that all of its core income generating activities (CIGAs) are carried out in Jersey, that it is directed and managed in Jersey in relation to its CIGAs and that it has adequate expenditure, employees and premises in Jersey.
Record keeping and filings
A limited partnership must maintain certain statutory records at its registered office. However, as mentioned above, the records are private and may only be inspected and copied by partners. Further, while the partnership must keep accounting records, there is no requirement for an auditor to be appointed (subject to any contrary provision in the limited partnership agreement and in the context of most investment funds). There is no obligation to file annual returns with the Registrar however an annual administration fee is payable to the Registrar.
Migration of foreign limited partnerships into Jersey
The States of Jersey Assembly has adopted regulations permitting foreign limited partnerships to migrate (continue) into Jersey using the statutory migration process set out in the Limited Partnerships (Continuance) (Jersey) Regulations 2020. Migration into Jersey is permitted for a foreign limited partnership which is formed in a jurisdiction which does not prohibit continuance overseas, does not have legal personality, is solvent and makes an application to the Jersey Financial Services Commission for continuance as a Jersey limited partnership which is registered under the Law.