The Limited Partnerships (Jersey) Law, 1994 (“the Law”) has provided financial planners with a valuable vehicle for use both by investment institutions and for sophisticated tax planning arrangements. This note describes how limited partnerships (“LPs”) might be used for certain types of transactions and how they can be established and administered.
WHAT IS A LIMITED PARTNERSHIP?
A limited partnership is a partnership between one or more “general” partners (who manage the partnership and have unlimited liability) and one or more “limited” partners (passive investors who have no involvement in the day to day running of the partnership). A limited partnership has the following essential characteristics:
- It does not have its own legal personality separate from its partners;
- A limited partner in a limited partnership has, notwithstanding the nature of his contribution, only the right to demand and receive money in return for it, unless there is a statement to the contrary in the partnership agreement, or all the partners in the limited partnership consent to some other manner of returning the contribution;
- A limited partner in the limited partnership has no authority or power to bind the partnership. Responsibility for managing the limited partnership rests exclusively with the general partner(s) and limited partnership property must be held by a general partner. General partners have unlimited liability for the limited partnership’s debts but may themselves be a company in which the shareholders have limited liability;
- The liability of a limited partner for the debts of the limited partnership is limited to the difference (if any) between the value of the money or other property contributed by him to the limited partnership and the value of the money or other property that he has agreed to contribute to the limited partnership. A limited partner may, however, incur unlimited liability for the debts and obligations of the partnership incurred during any period in which that limited partner participates in the general management of the partnership, or in certain circumstances where the limited partner allows his or her name to be incorporated into the name of the limited partnership; and
- A Jersey limited partnership must have at least one limited partner and one general partner. A limited partnership will be automatically dissolved in the absence of a general partner.
A limited partnership must consist of one or more persons who are general partners (who are liable for all debts and obligations of the partnership) and one or more persons who are limited partners (who have no liability for the debts or obligations of the partnership beyond the amount which they have agreed to contribute to the partnership). Both general partners and limited partners may be limited liability companies. A person may be both a general and a limited partner in a LP.
The terms of the partnership will be set out in a partnership agreement; however, a LP is not formed until a declaration has been filed with the Registrar of Limited Partnerships and the Registrar has issued a certificate that he has received the declaration. The declaration must give the name of the LP (which must end with the words “Limited Partnership” or its abbreviation “L.P.” and which must be approved in advance by the Registrar), its registered office address, the name and address of each general partner (in the case of a general partner which is a company, its place of incorporation and registered or principal office) and the duration for which the LP is established; it will not be necessary to file with the registrar either a copy of the partnership agreement or the names of the limited partners. The partnership agreement is not available for inspection by anyone other than the partners. A registration fee of £500 is payable to the Registrar; there is no annual registration fee payable.
The Law includes an amendment to the Borrowing Control (Jersey) Law 1947, the effect of which will be that Control of Borrowing consent will be required for each LP to raise capital from its partners. In addition, if a LP intends to offer limited partnership interests to the public as a collective investment scheme, the LP and its manager and general partners will need to obtain the appropriate permits under the Collective Investment Funds (Jersey) Law, 1988.