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Guernsey to Introduce Limited Liability Partnerships - International Law Office

International Law Office

Company & Commercial - Guernsey

Guernsey to Introduce Limited Liability Partnerships

June 29 2009

Limited Liability versus Joint and Several Liability

Formation of LLPs and Filing Requirements
Partnership Agreement

Conversions to LLPs
Limited Partnerships

A proposal to introduce limited liability partnerships (LLPs) into Guernsey law has been approved by the government and draft legislation is currently being prepared with this in mind. Guernsey's LLP regime will bear some similarities to that of the United Kingdom. Although their use will not be limited in scope, it is expected that Guernsey LLPs will mostly appeal to practitioners in professional firms who work within a general partnership. LLPs may also be suitable for other purposes, such as joint ventures. As with other structures, if an LLP intends to carry on a regulated activity, it will require a licence from the Financial Services Commission.


The traditional partnership model involves two or more individuals participating in a business venture, each with joint and several liability for the acts and omissions of any partner. The concept of joint and several liability is seen as outdated, non-commercial and draconian in any organisation which is of such a size that the partners are not all personally known to each other. In recent years, a number of leading legal and accountancy partnerships have reformed as LLPs in the United Kingdom and elsewhere.

Limited Liability versus Joint and Several Liability

It is proposed that partners (or 'members', as they are referred to in the proposals) of a Guernsey LLP will have limited liability for the acts and omissions of other members. A creditor of an LLP will have the right to pursue its assets, but such right will not extend to the personal assets of each and every member.

However, individual members who are liable for the act or omission giving rise to the claim or debt could be personally liable and may be pursued by the creditor if the assets of the LLP are insufficient to satisfy any debt due to that creditor. The personal assets of non-defaulting members of an LLP will be protected.

Formation of LLPs and Filing Requirements

The proposal includes various rules and requirements regarding the formation of LLPs and filing:

  • As with companies, only Guernsey licensed corporate service providers will be able to form LLPs, using the online service offered by the Company Registry.
  • To ensure that administrative costs are kept to a minimum, it is likely that ongoing requirements relating to the filing of information on the LLP will be limited to certain matters only.
  • LLP agreements and certain changes to the partnership will need to be filed at the registry. Annual validations will also need to be submitted to the registry.
  • LLPs will not be required to have audited accounts, although they will need to prepare their accounts in accordance with generally accepted accounting principles. In practice, there are unlikely to be major differences in the operation of an LLP in the case of a professional partnership, which is subject in any event to its own professional standards.
  • An LLP may adopt a separate legal personality. A change in the membership or the death or retirement of a member will not dissolve the LLP.

There is also likely to be provision in the new law to allow the disqualification of individuals from becoming a member of an LLP, on similar grounds to those applicable to directors' disqualification.

Partnership Agreement

The law will set out the requirements for an LLP agreement between the members of the LLP, including a number of minimum provisions concerning internal management. A standard partnership agreement may be prescribed by the authorities in due course. It is also proposed that an LLP should be able to indemnify its members out of its assets, and that such an indemnity may be included in the LLP agreement. LLPs may also be permitted to purchase insurance for their members.

Conversions into LLPs

Existing Guernsey law partnerships may be converted into LLPs upon application (accompanied by evidence, where applicable) to the appropriate professional body, which must consent to members of that profession practising through an LLP. There will also be notice provisions with which converting partnerships must comply.

It is intended that a converted LLP will not provide retrospective limited liability, so partners will remain jointly and severally liable until the date of conversion.

Provision may be made in the law allowing a company to convert into an LLP (and vice versa), provided that the rights of creditors are not prejudiced.

Limited Partnerships

A Guernsey LLP will be distinct from a Guernsey limited partnership. In limited partnerships, general partners are responsible for the day-to-day management of the partnership and remain jointly and severally liable for its liabilities, whereas limited partners – who do not take part in the running of the business – enjoy limited liability up to the amount of their investment. This feature of the limited partnership structure makes it popular for use as an investment vehicle.

LLPs are not intended to replace limited partnerships, but will provide a new framework for commercial and professional ventures in Guernsey.

For further information on this topic please contact Sean Cheong or Sam Dingle at Collas Day by telephone (+44 1481 723 191) or by fax (+44 1481 711 880) or by email (sean.cheong@collasday.com or sdingle@collasday.com).

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