Guernsey limited liability partnerships

LLPs have been introduced in several other jurisdictions, including the UK (from 2000) and a number of offshore jurisdictions, including; Bermuda, the British Virgin Islands, the Cayman Islands, Jersey, Mauritius and the Seychelles. In drafting the Limited Liability Partnerships (Guernsey) Law, 2013 (the Law) Guernsey has had the advantage of being able to learn from those other regimes to develop an alternative business structure that will be attractive to a wide variety of users, both domestic and international.

The principal concept of an LLP is that it combines the most advantageous features from a traditional partnership and a company. This gives the flexibility of operation of a partnership with reduced regulation compared to a company, combined with the benefit of its being a body corporate that can contract in its own right (rather than as a collective of partners), with limited liability for its members (in contrast to the unlimited liability of partners in a general partnership).

KEY FEATURES OF THE GUERNSEY LLP

Any lawful activity

It may be formed for the carrying on within Guernsey or elsewhere of any lawful business with a view to profit, or any other lawful activity. The latter limb was added to clarify that the Guernsey LLP can be used for an activity which is not necessarily trade or business (for example, acting as a holding entity), whereas there is uncertainty in UK law on this point.

Membership

It shall have two or more members who are admitted to the LLP in accordance with the members’ agreement. A member may be a natural person or a body corporate.

Body corporate

It is a body corporate (unlike, for example, the Jersey LLP) and has legal personality separate from that of its members; it therefore has continuous existence regardless of a change in its members, unless provided otherwise in the members’ agreement.

Limited liability of members

A member is not liable for any debt of the LLP, or of any other member, by virtue solely of his membership of the LLP (subject to any provision to the contrary in the members’ agreement or any other agreement). Consequently, a member’s liability will be limited to whatever the member has agreed with the other members or with the LLP to contribute (subject to the provisions of the Law regarding liability for fraudulent and wrongful trading).

No capital contribution or financial resources requirements

There is no initial capital contribution requirement in order to become a member of the LLP and (unless provided in the members’ agreement) no obligation to contribute capital to the LLP at all.

There are no bond or minimum professional indemnity insurance requirements (unless imposed by the LLP’s professional or regulatory body or specific regulatory laws to which it may be subject).

Capacity of LLP and power of members to bind it

It has unlimited capacity and every member of an LLP is its agent with power to bind it.

Written members’ agreement

It must have a written members’ agreement (unlike in the UK), but the members’ agreement is not publicly filed and is confidential to its members. The members’ agreement is an agreement of the members as to the affairs of the LLP and the conduct of its business, but there is complete flexibility as to its content and how the LLP will be managed, save that unless the members’ agreement otherwise provides:

• all the members of an LLP are entitled to share equally in the profits of the LLP as and when those profits arise;
• every member may take part in the conduct and management of the LLP; and
• each member must render true accounts and full information of all things affecting the LLP to any member or his legal representative.

It is believed that the first 2 points above are key criteria to ensure that the Guernsey LLP will be considered to be tax transparent for the purposes of Guernsey law and elsewhere (see below).

There is no concept of designated members with particular compliance functions (unlike in the UK and Jersey).

Tax transparency

Guernsey’s Income Tax legislation has been amended to ensure that domestically a Guernsey LLP will be treated as tax transparent in the same way as general partnerships, i.e. the LLP is not liable for tax, rather the members themselves are liable to be taxed on their share of the LLP profits.

Incorporation process

Formation of an LLP is straightforward and is conducted through the Guernsey Companies Registry; same day incorporation is available.

Accounts

Ongoing reporting requirements are relatively low. The LLP’s accounts are not publicly filed and there is no requirement under the Law for the accounts to be audited. The LLP is free to choose the applicable accounting standards and is not tied to UK GAAP or IFRS.

Conversion and migration procedures

The Law provides procedures for general partnerships to convert to LLP status and for migration of LLPs (together with their assets and liabilities) into and out of Guernsey, from/to other jurisdictions, as continuing legal entities.

USES OF GUERNSEY LLPS

In the short time since the Law has been in force, Guernsey LLPs have been registered for a variety of purposes.

A Guernsey LLP has been used to act as general partner of a UK limited partnership to ensure that the UK limited partnership is not subject to the accounting standards and public filing requirements of the UK Partnerships (Accounts) Regulations 2008.

Its use to house investment management firms is something we are likely to see much more of in the wake of the EU Alternative Investment Fund Managers Directive, due to which many EU based fund managers are looking to relocate their operations outside of the EU; the ability to migrate existing LLPs into Guernsey will be attractive in this regard.

As every member may take part in the conduct and management of the LLP, the LLP is suitable to any business where there is joint management, or as a joint venture vehicle; for example it could be used for an investment fund or club deal where investors wish to participate in the management of the assets whilst preserving their limited liability status.

Given a Guernsey LLP can be incorporated for any lawful activity, without the requirement that it be “with a view to profit,” it would also serve well as a vehicle for charities.

And of course the Guernsey LLP will be of interest to businesses traditionally carried out as partnerships, such as professional services firms, or employee owned businesses.