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21 February 2013
Legislation has recently been passed by the States of Jersey to amend the Limited Liability Partnerships (LLP) (Jersey) Law 1997. A Jersey LLP is a legal person distinct from its partners that can own property, sue and be sued in its own name. Each of its partners is obliged to contribute effort and skill to the business of the LLP, as agents of the partnership, but not of each other.
The law previously required a Jersey LLP to maintain financial provision arrangements with one or more banks or insurance companies in Jersey for the life of the structure, in the form of a £5 million bond. The bond would be paid to the person responsible for winding-up the affairs of the LLP, in order to enable them to settle any liabilities of the LLP at the time of its dissolution. The obligation to ensure that LLPs made financial provisions for potential creditors included a restriction that prevented the LLP from assigning, charging or otherwise encumbering the bond. However, these onerous financial requirements proved an insurmountable barrier to the establishment of LLPs in Jersey.
From January 17 2013 certain amendments have been made to the law to increase the flexibility of Jersey LLPs by removing the requirement for the £5 million bond to be maintained. The Limited Liability Partnerships (Amendment of Law) (Jersey) Regulations 2013 seek to ensure that creditors dealing with LLPs remain protected by introducing the concept of a 'specified solvency statement', which must be made by the LLP before any partnership property may be withdrawn from the LLP.
The solvency statement requires that the LLP state that, in its opinion (with regard to the prospects of the LLP and the intentions of the partners with respect to the management of the LLP's business, as well as the amount and character of the financial resources that will be available to the LLP), it can continue to carry on business and discharge its liabilities as they fall due, for the period of 12 months immediately following the date of the specified solvency statement or until dissolution of the LLP, whichever occurs first.
The solvency statement can be made by the LLP at any time. If a partner or former partner withdraws any property of the LLP at any time, and either the LLP has not made a specified solvency statement in the 12 months immediately preceding the withdrawal or a specified solvency statement has been made without the LLP having reasonable grounds for the opinion in that statement, the partner or former partner must return the property to the LLP.
Under the changes to the law as a result of the regulations, the liability to return partnership property to the LLP will not apply if the Royal Court declares that it is satisfied that:
The amendments to the law will enhance the flexibility of Jersey LLPs and will encourage their use for investment structuring purposes (as has been the case for UK LLPs). The proposed amendments will enable Jersey LLPs to be used as an alternative structure to a UK LLP for the benefit of individuals and corporates. Some UK advisers have argued that a Jersey LLP with no corporate partners might prove an attractive vehicle for acquiring and holding UK residential property with a value of over £2 million, following recent UK tax changes that affect non-natural persons acquiring and holding such property.
A Jersey LLP must have a registered office in Jersey and comply with the following requirements:
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