In a move to compete with other offshore finance centres and attract US inward investment, Jersey is set to allow investors to set up limited liability companies (LLCs) for the first time
The States of Jersey, the jurisdiction's parliament, has passed the Limited Liability Companies (Jersey) Law 201-, creating a legal framework for the establishment of LLCs.
These structures, widely used in the US, offer the privacy of a partnership with the protective limited liability of a company. LLCs are popular vehicles for a wide variety of uses, from SMEs and holding companies to fund structuring.
LLCs currently accounting for over two-thirds of all new transparent business structures formed in the US each year. It is expected that the introduction of a Jersey LLC will give US advisers, investors, businesses and fund managers a familiar option for cross-border structuring.
The original LLC consultation document stated that the popularity of ‘the US LLC is largely due to its flexibility, with it being used for a variety of purposes, from simple businesses undertaken by one or more persons to being used as the ultimate holding vehicle of Fortune 500 companies. It is also popular as a special purpose vehicle in finance and fund structures’.
The introduction of LLC structures is designed to increase Jersey’s share of US financial inward investment. The latest figures show that North American assets and funds administered in Jersey in 2016 totalled approximately £169bn.
The Jersey LLC combines elements of both Jersey limited companies and statutory partnerships, resulting in it having a separate legal personality without being a ‘body corporate’. All LLCs will have to set up a registered office in Jersey.
It will be treated as a transparent entity for tax purposes (ie, the profits will be allocated to the members of the LLC, who will be required to pay income tax in the jurisdiction(s) in which they are tax resident) although it would have the ability to elect to be treated as a company instead via filing with the Jersey Taxes Office.
In a briefing document issued by Carey Olsen at the consultation stage, questions were raised about whether Jersey LLCs would face tax compliance issues as US LLCs in the UK, presumably if they were used as an indirect investment vehicle into the UK and thereby skirted UK restrictions.
Carey Olsen partner Peter German suggested that ‘the LLC is not (currently) aimed at direct investment into the UK, where for those very reasons we envisage the use of LLPs to continue. Recent UK case law also suggests (at least on a case-by-case basis) that the door for recognising LLCs as transparent entities in the UK may slowly be opening.
‘The question also focuses on a scenario where the intention is for the LLC to be treated as transparent for tax purposes. Given some of the advantages of an LLC over a limited company, we may also see LLCs that elect to be taxed as companies being preferred to traditional limited companies.’
International LLC structures already exist, for example in 2016, Bermuda and the Cayman Islands both passed legislation allowing equivalent versions of LLC structures, while the Isle of Man has offerd LLCs since 1996.
Geoff Cook, CEO, Jersey Finance said: ‘We are confident that the Jersey LLC can provide an attractive proposition for US-based hedge fund managers, particularly in operating master-feeder structures. We anticipate strong growth in this area.'
The new LLC law comes hot on the heels of new limited liability partnerships legislation (LLPs) which came into force in Jersey in August 2018. The Limited Liability Partnerships (Jersey) Law 2017 represents a major overhaul of Jersey’s existing LLP legislation, originally introduced in 1997.
Limited Liability Companies (Jersey) Law 201-, adopted 11 September 2018