Introduction

Guernsey has joined Jersey, the UK and a number of other jurisdictions in introducing the limited liability partnership (“LLP”) as an additional vehicle to structure commercial arrangements, with the coming into effect of the Limited Liability Partnerships (Guernsey) Law, 2013 (the “LLP Law”) on 13 May 2014.

Readers may recall that foundations were introduced last year and the introduction of the LLP indicates Guernsey’s continued commitment to developing its offering to persons looking to set up business in and through Guernsey.

The purpose of this briefing note is to summarise the key features of the Guernsey LLP and to highlight some of the provisions of the LLP Law which we think may be of interest to readers.

Key features of a Guernsey LLP

Not a general partnership or limited partnership It is clear from the LLP Law that LLPs are a new type of vehicle. They are distinctly different from both general partnerships under the Partnership (Guernsey) Law, 1995 (the “Partnerships Law”) and limited partnerships established under the Limited Partnerships (Guernsey) Law, 1995 (the “Limited Partnerships Law”).

Unlike limited partnerships, where the rules of law applicable to general partnerships apply to limited partnerships (unless inconsistent with the Limited Partnerships Law), the LLP Law makes it clear that it is a “stand alone” regime, and the rules of law applicable to partnerships do not apply to LLPs unless expressly provided for in the LLP Law.

Limited liability

A key feature of the LLP is that it is a body corporate, and much like a limited liability company, it has legal personality separate from its members. In short, the effect of this is that unless the agreement between the members of the LLP provides otherwise, a member is not liable for the debts of the LLP or the debts of the other members simply by virtue of his membership of the LLP.

Perpetual existence

An LLP has perpetual existence and therefore even if there is a change of membership, the LLP does not dissolve, as may be the case with a limited partnership or general partnership, but remains in existence.

Unlimited capacity

The LLP also has unlimited capacity, which means that subject to what the membership agreement provides, the LLP can conduct a broad range of business activities. In that regard, the LLP law specifically provides that an LLP may be formed in Guernsey for the carrying on of any lawful business with a view to profit, or any other lawful activity. Accordingly, the business of an LLP is not limited to conducting business to generate a profit and therefore, for example, there is no reason why the LLP could not be established for a charitable purpose or simply to act as a holding vehicle within a particular structure.

Membership and relationship between members

As is the case with partnerships and limited partnerships the LLP must have at least two members who must be natural persons or body corporates. This is different from the position in respect of Guernsey companies which can have a single director and member.

Certain categories of persons are excluded from qualifying as members of an LLP (much in the same way as directors under the Companies Law – see more detail below).

The relationship between the members of the LLP is regulated by the members’ agreement which is mandatory and must be in writing. Under the LLP Law, the members’ agreement is binding on the LLP and the members as if the members’ agreement were duly executed by the LLP and the members. In addition the members’ agreement is binding on members who later enter the LLP notwithstanding that they are not party to it. The members’ agreement may only be amended by an instrument in writing executed in accordance with the terms of the members’ agreement.

A person ceases to be a member of the LLP in accordance with the members’ agreement, or in the absence of a provision in the members’ agreement as to cessation of membership, by giving at least 3 months’ written notice to the other members.

Unless the members’ agreement provides otherwise, or all the members otherwise agree, a member who leaves the LLP has the right to demand the return of any capital he contributed to the LLP, and on a member dying, any capital contributed vests in his estate.

Management and operation

Much like a partnership, unless the members’ agreement provides otherwise:

  • Every member may take part in the conduct and management of the LLP.
  • Each member of the LLP is an agent of the LLP with the power to bind the LLP, but the LLP is not bound by anything done by a member in dealing with a third party if the member has no authority to act for the LLP in doing that thing and the third party knows that the member has no authority or does not know or believe that person to be a member of the LLP.
  • Where a person has ceased to be a member of the LLP, the former member is to be regarded in relation to any person dealing with the LLP as still being a member of the LLP unless notice has been provided to the third party or the Registrar. This is different from a partnership in that one would usually provide notice in the Guernsey Press and not to the Registrar.

Authority to enter into contracts and powers of attorney

A contract can be entered into by an LLP by a person acting under its authority express or implied. A document is executed for and in the name of an LLP by signature of a member of the LLP.

An LLP may give a power of attorney to a person to represent it and act in its name and execute documents on its behalf, generally or in relation to a specified matter provided that it is signed by a member. Unless the power of attorney states otherwise, the power of attorney is capable of use in Guernsey and elsewhere.

Profit sharing

Unless the members’ agreement provides otherwise all members share equally in the profits of the LLP as they arise.

Winding up

An LLP may be wound up voluntarily on the occurrence of an event of winding up set out in the members’ agreement or if all the members agree that it is wound up.

Alternatively, a member, creditor, the Guernsey Commerce and Employment Department or the Commission (in the case of a regulated LLP) can make an application to the Court to have the LLP wound up on one or more of the following grounds:

  • It is not reasonably practicable to carry on the LLP’s business in conformity with the members’ agreement.
  • The LLP cannot satisfy the solvency test.
  • The LLP is indebted to a creditor in a sum exceeding £750 or such other sum as may be prescribed from time to time and despite a demand having been served by Her Majesty’s Sergeant for the repayment of the debt, the LLP has not repaid the debt or given sufficient security to the creditor for the repayment of the debt within a period of 21 days of the date of the demand.
  • The LLP is being conducted in a manner which is unfairly prejudicial to the interests of members generally or some part of the members or some act or omission of the LLP is or would be prejudicial.
  • The affairs of the LLP being conducted in such a way as to defraud creditors (of the LLP or such other person) or in an unlawful manner.
  • It is just and equitable to do so.
  • Persons in connection with the formation or management of the LLP have in
  • connection therewith been guilty of fraud, misfeasance, breach of fiduciary duty or other misconduct in relation to the LLP.
  • It is desirable that the LLP should be wound up for the protection of the public or of the reputation of the Bailiwick of Guernsey as a financial centre.

On a winding up, subject to all expenses properly incurred in the winding up being paid from the LLP property, the property of the LLP is distributed as follows:

  • First to creditors other than members, in satisfaction of the LLP’s debts as if the LLP were a company which is insolvent.
  • Second to members who are creditors to the extent otherwise permitted by law, in satisfaction of the LLP’s debts.
  • Last to the members according to the provisions of the members’ agreement.

Incorporation of an LLP

As is the case for Guernsey companies, only corporate services providers (“CSP”) may make an application to the Registrar of Limited Liability Partnerships (the “Registrar”) to effect the incorporation of an LLP. The office of Registrar is held by the Registrar of Companies.

Under the LLP Law, in making the application, the CSP must pay to the Registrar the prescribed fee (currently £100 for incorporation within 24 hours and £350 for a same-day incorporation) and file a statement in such form as the Registrar prescribes. Currently there is an application form available on the Registrar’s website for this purpose.

Importantly, much in the same way as directors of Guernsey companies, the Registrar requires that members of the LLP must register with the Registrar in order that a unique identity number can be allocated to the member. This registration can be done in parallel with the incorporation application. A body corporate already registered with the Registry need not register again as the registration number allocated to them will be utilised as the identity number. Body corporates who are registered overseas (and not on the Guernsey Register) need to complete the Overseas Corporate Body application form. The Registry will then allocate a number which will then be issued to the body corporate.

Individuals who are registered as directors with the Registrar under the Companies Law need not register as their existing number will be used. Individuals who are not registered with the Registry need to complete an application form that is set out on the Registrar’s website. At present there is no additional fee that is charged by the Registrar for this registration.

An LLP must have a Guernsey resident agent. The name of the LLP must end with the expression “Limited Liability Partnership” or the abbreviation “llp” or “LLP”.

On registration, the Registrar will issue a certificate of incorporation. For the purposes of the Law the certificate is conclusive evidence that the LLP is incorporated and registered by the name set out in the certificate.

What are the on-going administration requirements?

Records and accounts An LLP must keep the following at its registered office and which must be kept available for inspection by members subject to the members’ agreement:

  • register of members;
  • name and address of its resident agent (if any);
  • the members’ agreement;
  • its accounting records;
  • minutes of all meetings of members; and
  • all documents filed from time to time with the Registrar.

Under the LLP Law, the accounting records must be:

  • sufficient to show and explain the LLP’s transactions, including a record of all contributions and loans to and from members;
  • sufficient to show and explain that the LLPs property is kept separate from the property of its members;
  • such as to disclose with reasonable accuracy, at any time, the LLP’s financial position at that time; and
  • such as to enable the members to ensure that the LLP’s balance sheet and profit and loss account are prepared properly and in accordance with the relevant enactment for the time being in force.

The accounting records must be kept for at least 6 years from the date that they are prepared.

Annual validation

In each calendar year before the 30th June, every LLP registered before 1 May must complete an annual validation. The annual validation must be submitted together with a declaration of compliance (annual validation) and an annual validation fee of £500.

An LLP who fails to submit an annual validation commits an offence and in addition, is subject to a daily default fine and is liable to be struck off the Register.

Migrations

Under the LLP Law, an overseas LLP can transfer its registration to Guernsey and a Guernsey LLP can transfer its registration from Guernsey subject to complying with the migration procedure set out in the LLP Law. The procedure is very similar to that set out in the Companies Law for the migration of companies into and out of Guernsey.

Who can convert to an LLP?

A Guernsey general partnership (i.e. a firm) can convert to an LLP using the statutory conversion process set out in the LLP Law, provided that the members of the LLP to which the firm is to be converted comprise all the partners of the firm and no-one else. For the purposes of the LLP Law, conversion means a transfer of the property, interests,
rights, privileges, and debts and the undertaking of the firm. Upon conversion to the LLP, the firm dissolves as a matter of law.

Striking off

An LLP can be, much in the same way as Guernsey company, struck off the Register.

The Registrar has the power to strike off a defunct LLP, where the Registrar has reasonable cause to:

  • believe that an LLP is not carrying on business; or
  • in the case of an LLP that is being wound up, that no liquidator is acting or that the affairs of the LLP are fully wound up.

In addition the Registrar has the power to strike off a defaulting LLP off the Register in circumstances where:

  • the LLP fails to deliver the annual validation;
  • a resident agent has requested information and the LLP has failed to comply within the period specified;
  • it appears to the Registrar that the LLP has only one member; and
  • the Registrar is of the opinion that the LLP should be struck off as a result of persistent or gross contraventions in respect of an LLP.

Where the Registrar exercises the powers above, the Registrar must give notice that at the expiration of the period of two months beginning with the date of the notice, the LLP will be dissolved, unless cause is previously shown to the contrary.

At the expiration of the said period the Registrar shall (unless cause to the contrary is shown) strike the LLP off the Register and upon that date the LLP will be dissolved.

If an LLP is party to proceedings then the Registrar cannot exercise the power to strike it off.

Where an LLP is struck off the property of the LLP held by or vested in it shall become bona vacantia belonging to the Crown.

Where an LLP has been struck off the Register, a member, creditor or liquidator thereof, the Commission (in the case of a regulated LLP) or any other person appearing to have sufficient interest to make the application, may apply to the Court for an order for the LLP to be restored to the Register.

The application, however, has to be made before the expiry of 10 years from the date of the striking off. The Registrar has the power under the LLP Law to restore a struck off LLP in circumstances where he is satisfied that the LLP was struck off in error, or in circumstances in which under the LLP Law it should not have been struck off and the restoration would not prejudice any creditor or third party.

Conclusion

The introduction of the Guernsey LLP is a useful addition to the types of entity that may be established in Guernsey. The LLP offers features that are much closer to that of a company without being a company, and as such is best described as a “hybrid” vehicle.