The Limited Liability Partnerships (Guernsey) Law, 2013 (LLP Law) is now in force and from 13 May 2014 the Registrar of Limited Liability Partnerships (Registrar) has been in a position to accept applications to register limited liability partnerships incorporated under the new law. Limited liability partnerships combine the flexible features of general partnerships with the benefit for its members of limited liability. As such, it has become a vehicle of choice for professional persons in jurisdictions in which it has been introduced. However, as the LLP Law provides a flexible vehicle we anticipate it may be usefully applied in a variety of commercial contexts and provide additional structuring options. As such, it will be of interest to both the local and international business community.
The central characteristics of a limited liability partnership established under the LLP Law (an LLP) are:
- an LLP is a body corporate and therefore has legal personality separate from its members;
- an LLP may undertake any lawful business and has unlimited capacity;
- an LLP must have two or more members admitted in accordance with the members' agreement;
- members may be natural persons or bodies corporate;
- an LLP is formed by being incorporated under the LLP Law and a change in members does not affect its continuing existence;
- it has organisational flexibility, with members permitted to take part in the management of the LLP;
- tax transparency (in the same way as partnerships);
- a member is not liable for any debts of the LLP or any other member by virtue solely of his membership of the LLP;
- migration to and from Guernsey is permitted; and
- conversion from a Guernsey general partnership to an LLP is expressly provided for.
An incorporation statement including the name of the LLP, the name and address of its resident agent (if any), the nature and principal place of its business and the address of its registered office, which must be in Guernsey, must be submitted to the Registrar, together with the prescribed fee, currently £100 (or £350 for same day incorporation). It is possible to defer the date of incorporation by up to three months from the date of application.
Operation of an LLP
Members of an LLP may be bodies corporate or individuals. Every LLP must have a written members' agreement but the contents are not prescribed, thereby allowing considerable organisational flexibility. However, unless otherwise included within the members' agreement, the LLP Law provides that all members are entitled to share equally in the profits of the LLP and may take part in the conduct and management of the LLP.
The LLP, as a separate legal personality, owns the business's assets and is liable for its own debts. In principle, every member acts as agent of the LLP with power to bind the LLP. There are limits, for example, where that member is not in fact authorised to act.
Working capital may be provided by members to the LLP by way of capital or loan. There are no minimum capital contributions required from members.
There is no public filing requirement in relation to the members' agreement, although the LLP's register of members may be inspected or copied by any member of the public on payment of a prescribed fee. An LLP is required to submit an annual validation containing information about the LLP to the Registrar each year.
LLPs are required to keep at their registered office in Guernsey a copy of:
- the register of members;
- the names and addresses of the resident agent (if any);
- the members' agreement;
- its accounting records (kept in accordance with the provisions of the LLP Law and sufficient to show the financial position of the LLP at any time);
- minutes of members' meetings; and
- all documents filed with the Registrar.
Subject to the provisions of the members' agreement, all records must be available to all members for inspection during ordinary business hours in Guernsey.
Conversion from a general partnership to an LLP
The LLP Law expressly provides for the conversion of a Guernsey general partnership into an LLP and sets out a procedure for so doing.
There are provisions in the LLP Law permitting certain LLPs incorporated under the laws of jurisdictions other than Guernsey to migrate to Guernsey and become registered as an LLP and to migrate out. The LLP Law requires, for both migrations in and out, the consent of the Guernsey Financial Services Commission in the context of regulated businesses.
LLPs (i) with only one member; (ii) which have failed to deliver annual validations when due; (iii) have failed to respond to information requests by resident agents; or (iv) which have, in the opinion of the Registrar, committed persistent or gross contraventions, may be struck off.
Winding up and Dissolution
An LLP commences winding up if an event specified in the members' agreement occurs, if the members unanimously agree that it should be wound up or dissolved or if the Royal Court makes an order pursuant to the LLP Law for the winding up of the LLP. Circumstances where the Royal Court may order a winding up include where the Court is of the opinion that:
- the LLP is insolvent;
- it is not reasonably practicable to carry on the business of the LLP in accordance with the members' agreement;
- the business of the LLP is being carried on in a manner which is unfairly prejudicial to the members (or any of them);
- where there is fraud;
- if it is desirable that the LLP should be wound up; or
- where it is just and equitable to do so.
The LLP Law creates a framework for administration of an insolvent LLP.
We have set out a table below offering some brief comments on the key differences between a Guernsey company, a Guernsey general partnership and an LLP.
This seeks to provide, by way of general overview, a comparison of the regime applicable to LLPs, general partnerships and companies in Guernsey.
Click here to view the table.