Limited partnerships in Jersey are governed by the Limited Partnerships (Jersey) Law 1994 (the "Partnerships Law"). The Partnerships Law provides for considerable flexibility in the structuring and operation of limited partnerships and importantly offers both tax transparency and limited liability for limited partners. Jersey limited partnerships are commonly used in the following areas:
- as vehicles for private equity and venture capital schemes;
- as collective investment funds;
- as part of tax and financial planning;
- as part of real estate development and investment arrangements; and
- as components of asset protection arrangements.
Jersey limited partnerships are transparent for the purposes of Jersey taxation. Non-Jersey tax resident investors participating as limited partners in a Jersey limited partnership are not subject to Jersey income tax or any withholding tax on their share of partnership profits or gains arising from business or investment activities carried on outside Jersey.
The formation procedure for a Jersey limited partnership is straightforward. The limited partnership must comprise at least one general partner (who is liable for all the debts and obligations of the limited partnership) and one limited partner (whose liability is limited to the value of his agreed capital contribution).
There is no upper limit on the number of partners in a Jersey limited partnership and limited liability companies can participate either as general or limited partners. Depending on the use of the limited partnership, there may be a regulatory requirement to have a Jersey based general partner, although the Partnerships Law itself does not require a general partner to be resident or incorporated in Jersey.
A declaration signed by each general partner must be filed in Jersey with the Registrar of Limited Partnerships stating the name of the partnership, its registered office address in Jersey and containing details of the general partner and the duration of the partnership. A registration fee of, currently, £500 is payable to the Jersey authorities in respect of each Jersey limited partnership. As a matter of partnership law, there is no requirement to file details of the names of the limited partners or their capital contributions in the partnership declaration. Similarly, the nature of the activities and purpose of the limited partnership do not need to be disclosed in the declaration and there is no requirement to file copies of the partnership agreement. Once again, however, depending upon the nature of the activities of the limited partnership, there may be regulatory requirements to disclose and discuss with the Jersey Financial Services Commission (the "JFSC") details about the proposed limited partnership, its activities and the number and status of its limited partners.
A Jersey limited partnership must set up a number of statutory records which must be maintained at its registered office. However, the records are private and may only be inspected and copied by partners.
Partnership accounting records must be maintained but there is no requirement for partnership accounts to be audited unless this is required by the partnership agreement. Partnership accounts may be drawn up in any currency. A limited partner can contribute his capital in the form of money or other property. He may also have his capital account credited as paid up in return for the provision of services.
The creation of partnership interests in a Jersey limited partnership requires a consent under the Control of Borrowing (Jersey) Order 1958 (the "1958 Order").
To the extent that a Jersey limited partnership qualifies as a public collective investment fund, the general partner and any other provider of services in or from within Jersey will be subject to regulatory requirements in Jersey under the Collective Investment Funds (Jersey) Law 1988 and the Financial Services (Jersey) Law 1998 (the "FSJ Law"). If the limited partnership also qualifies as a Jersey expert fund or a fund which is materially equivalent to a Jersey expert fund, the on-going compliance requirements for Jersey-based service providers will, however, be lighter. If the limited partnership is established as a non-public collective investment scheme, it will be subject to lighter authorisation and supervision procedures implemented under the 1958 Order. However, regulatory controls and exemptions under the FSJ Law may be applicable to the limited partnership and its general partner depending upon their activities. Appropriate advice should be sought generally in connection with these regulatory matters.
Jersey limited partnerships have the capacity to operate on a variable capital basis, allowing contributions from limited partners to be increased or returned to limited partners during the continuance of the partnership in accordance with the terms of the partnership agreement. Capital and profit distributions may be made freely in accordance with the terms of the partnership agreement and subject only to a simple solvency test with a claw-back mechanism which applies for a period of six months following distribution where a payment is made at a time when the partnership is insolvent or became insolvent as a result of the payment.
A limited partner will lose his limited liability if he participates in the management of the limited partnership in its dealings with persons who are not partners. However, the Partnerships Law provides a non-exhaustive list of acts which a limited partner can carry out and which do not constitute taking part in the management of the partnership. These include:
- advising the general partner with respect to the activities of the limited partnership; and
- approving the purchase or sale by the limited partnership of any asset.
There is no obligation to file annual returns with the Registrar of Limited Partnerships in Jersey and there are no annual fees payable to the Jersey authorities by the limited partnership.
If a Jersey limited partnership is to be established for private business or family purposes or if there will be fewer than 15 limited partners, the registration formalities for the limited partnership can normally be accomplished within a few working days in conjunction with the Registrar of Limited Partnerships in Jersey.
If the Jersey limited partnership is to be used as a vehicle for collective investment (including private equity transactions) and will be subject to public offerings or private placement with interested investors or if it will engage in financial services activities with third parties who are not connected with the founding partners, the regulatory classification and treatment of the limited partnership and its general partner fall to be dealt with by the Authorisation Division of the JFSC, unless the limited partnership qualifies as an unregulated fund. The timescale for registration of the limited partnership will be dependent on this regulatory classification and the outcome of the regulatory review process by the JFSC.
Further details regarding the regulatory requirements specific to investment funds may be found in our firm's Briefing entitled "Jersey Investment Funds". In relation to private equity and venture capital limited partnerships, please see our firm's Briefing entitled "Private Equity and Venture Capital Limited Partnerships".