Background
Limited partnerships (LPs) are unincorporated bodies, born out of an arrangement between two or more partners. The partners of an LP are designated as either general partners or limited partners, with the general partner(s) acting and holding any assets on behalf of the limited partnership.
The limited partnership structure is mostly used by Jersey’s financial services sector for its international fund, private finance, property holding or private venture capital structures. This is due to it combining the benefits of tax transparency and the flexibility of an ordinary partnership with limited liability for its limited partners, i.e., the underlying investors.
The Law does not require the general partner to be resident in Jersey and there is no upper limit on the number of limited partners it can have.
Aims of the Proposed Amendments
Following extensive consultation with, amongst others, a key expert industry working group led by Jersey Finance Limited, it has been proposed the Law be updated. The amendments to the Law have been prepared with the following aims:
- to modernise and resolve any ambiguity in the Law and build greater flexibility, recognising developments in other jurisdictions;
- to clarify the process for terminating a limited partnership;
- to provide new reporting obligations and powers to the Registry to ensure the Register remains accurate; and
- to provide wider amendment powers by way of secondary legislation to facilitate quicker and more efficient legislative change in the future.
Whilst this publication does not propose to summarise the changes in full, the below are selected “points of note” from the current consultation in relation to the changes currently anticipated in order to achieve the above-mentioned aims.
Modernising the Limited Partnership Law
A number of the amendments are proposed in order to clarify or update the current legislative position. Clarifications of note to the current Law include:
- specific provisions in relation to the delivery and registration of electronic forms and communication from LPs;
- confirming that a general partner can be an unincorporated body;
- the addition of express provision that disclosure of the records of LPs are subject to the terms of the applicable partnership agreement; and
- clarification that contributions made by a limited partner to LPs may be paid up or left owing.
In addition, new provisions are proposed to be made to the Law with the aim to bring the Law more in line with competitor jurisdictions and legislation relating to other Jersey corporate entities, but to also increase the flexibility of the Law going forward. Notably new provisions include:
- allowing third parties to have enforceable rights under the partnership agreement while not being a partner of the LP;
- making statutory provision for the general partner to be liable for the debts and obligations of the LP in the event the LP has insufficient assets to meet its liabilities;
- one of the main aims addressed by the proposed amendments was to increase the flexibility of LPs by allowing the limited partnership agreements to, except in certain circumstances, override the Law, with the law operating more as a statutory back stop where the partnership agreement is silent. The amendments proposed to achieve this include:
- removal of overriding statutory restrictions on general partners’ rights and powers in respect of the limited partnership. The powers and the rights of the general partner are now made subject to the partnership agreement only;
- a partner’s entitlement to receive a return of his or her contributions is expressly made subject to the terms of the partnership agreement;
- a limited partner’s liability to the limited partnership is to be expressly made subject to the terms of the partnership agreement. This can provide none will be made to the limited partner or the circumstances which trigger a repayment or return of any contributions or profits received;
- a limited partner’s liability for the debts or obligations of the limited partnership are expressly made subject to the partnership agreement in addition to the Law; and
- new provisions allowing for the winding up of the partnership to be undertaken by a person other than the general partner if authorised by the partners or by the partnership agreement or by the court.
Notwithstanding the above, the proposed amendments to the Law also provide wider protections for the limited liability of the limited partners. This is achieved in the amended Law by the expanding the “safe harbours” regarding participation in the management of the limited partnership (for which a general partner is responsible and exposes such a person to the debts and liabilities of the limited partnership in the event it is insolvent).
Termination of Limited Partnerships
The current provisions of the Law regarding the termination of limited partnerships have raised practical issues with LPs in Jersey.
The proposals will amend the Law to create a clearer order of events to the termination process, with the dissolution being the final act of the limited partnership (similar for example, to the winding-up of a company under Jersey law). The changes also allow a mechanism for the removal of a limited partnership from the Register for non-compliance with its statutory reporting and annual fee payments, allowing historic limited partnerships which failed to follow a correct de-registration process to be removed from the Register.
The new termination process is therefore proposed:
- for a voluntary termination – the winding-up of the limited partnership will be triggered in accordance with the terms of the partnership agreement upon which the limited partnership is obliged to be wound-up. Upon the winding-up being completed, a request for cancellation of its registration must be delivered to the Registrar. Dissolution will occur once the limited partnership is de-registered, reversing the current statutory position, which is based upon customary law.
At the time of drafting, the consultation continues to explore whether at the time of the winding-up of the limited partnership being triggered, whether any public notification should be required at this stage, including but not limited to possible filings with the Registry to note the proposed winding-up. Further consideration of the advantages or consequences of making such notice or public notification are to be considered further and may be introduced into the proposed amended Law.
- for an involuntary termination the variety of methods to bring the LP to an end whilst recognising rights and protections of limited partners and creditors is expanded.
In addition to the above new process, the amendments to the Law also introduce the power to reinstate a limited partnership, to address the possible adverse consequences of a limited partnership having its registration cancelled by the Registrar for the continued default of the general partner or being mistakenly de-registered whilst it still has assets. Any application to reinstate the limited partnership can be brought by a partner, creditors or any other interested party at any time before the 10th anniversary of it being de-registered (a provision similar to equivalent legislation for reinstating companies under Jersey law).
Enhanced Reporting Obligations
As previously noted, the proposed amendments to the Law provide new reporting obligations and powers to the Registry to ensure the Register is kept up-to-date and correct. These include:
- a new annual confirmation, bringing the reporting obligations in line with obligations of other legal entities in Jersey. It will provide the Registrar regular updates as to the status of the limited partnership and any changes to the information previously provided to the Registrar;
- as detailed above, the new process regarding the termination of limited partnerships allows the Registrar to remove defaulting limited partnerships from the Register for any continued default; and
- the amendments proposed also include a new power for the Registrar to apply to the Court for a limited partnership to be wound up where its activities are bringing the reputation of the Island into disrepute.
Wider Amendment Powers
Finally, the amendments allow for further additional amendment to be made to the Law (as amended) by way of regulations rather than the requirement to amend the primary legislation. Such regulations would require the approval of the States Assembly, but not the approval of the Privy Council.
The amendments also include provision to allow for the annual confirmation requirement to be expanded to include additional information upon an Order being issued, without the approval of the States Assembly or Privy Council.
Conclusion of Amendments Proposed
These changes will affect all limited partnerships, including those which are used for domestic purposes as well as those used in international structures and which have non-Jersey resident general partners. The amendments enhance the flexibility of limited partnerships, creating a statutory framework but allowing the individual circumstances of each LP and its partners to be taken into account. The additional powers provided to the Registrar to remove limited partnerships at its own discretion (within the requirements of the amended Law) will ensure the Register is kept updated and accurate, and allows Jersey to further demonstrate effective supervision of limited partnerships.
