In December 1995, the Jersey Finance and Economics Committee announced its intention to introduce legislation permitting the registration of limited liability partnerships (LLPs) in the island. This initiative followed the introduction of LLP law in the US state of Delaware, where the American partnerships of all the big six accounting firms have registered.
The Jersey legislation is being drafted in conjunction with UK accountants Ernst & Young and Price Waterhouse and will be similar to the LLP law in Delaware.
Jersey is a leading offshore financial centre and will offer a place of registration as a limited liability partnership for partnerships operating throughout the the world. The legislation will be drawn up to enable various professions, and not just accountants, to register. It should be of considerable interest to legal partnerships worldwide.
Registration under the law will protect the personal assets of all partners from the firm's creditors, other than the partner held to be responsible for the particular act under which a claim is made against the partnership. It will not protect the partnership assets from creditors and neither is it aimed at producing any tax benefits.
The tax situation will depend upon the laws of the country in which the partnership is practising, but generally the registration of the partnership in Jersey will be transparent for tax purposes and tax will be paid in the home country on the same basis as usual.
Registration in Jersey will not have any effect on the statutory and professional rules governing the activities of the partnership in its home country.
Jersey already has legislation covering limited partnerships which is frequently used in mutual fund structures to give investors limited liability, tax transparency and the ability to offset any underlying tax credits against tax liabilities in their home jurisdiction.
However, this legislation is not suitable for the operation of professional services firms as it prohibits limited partners from taking any part in the management of the business activities.
Draft legislation which will overcome the difficulties of the present law will be available shortly and should be enacted by the end of 1996.
The new law is likely to include a registration process whereby details of the partnership and all its partners will be held on a central registry in Jersey. There will also be annual registration fees but these have not been fixed yet. Assuming that the LLP does not practise or generate income in Jersey, there should not be any liability to Jersey income tax.
A condition of registration will be the posting of a bank guarantee or bond in a form acceptable to the island authorities. This guarantee will be available to meet claims of creditors over and above the unencumbered assets of the partnership.
The guarantee is likely to be set at £5 million, but there will be discretion granted to the Finance and Economics Committee to change this figure as it thinks appropriate. The size of the bond is an indication that the authorities are seeking to promote registration by partnerships of stature.
It is likely there will be no need to have a general partner in a LLP. This should avoid the usual need to have a corporate limited partner and it will open up the possibility of registration to UK legal firms.
Launching this initiative has been a bold step by the Jersey authorities. A great deal of Jersey's success as an offshore finance centre can be attributed directly to the integrity of its finance industry and the authorities will be keen to ensure that, in extending the island's portfolio of offshore products, its high standards will not be compromised.
The next 12 months should see the enactment of the necessary legislation and it will be intriguing to see just how many LLPs do eventually register in the island.