LIMITED PARTNERSHIPS (“LP”)
The Limited Partnerships (Jersey) Law 1994 (“the Law”) enables the creation of a flexible vehicle for use both by investment institutions and for sophisticated tax planning arrangements.
Examples of three potential uses of Limited Partnerships are described below:
- Venture capital funds: LPs are generally the favoured structure for use in a venture capital fund, as (unlike a limited liability company) capital raised from investors may readily be returned to them as investments are realised. The structure provides limited liability participation and yet is a look-through vehicle for investors each partner being taxed directly on his share of receipts from underlying investments. The general partner of an LP established for such a purpose will generally be the investment manager (or a special purpose subsidiary of the investment manager) and if this is a public fund with 50 or more investors, the general partner will require a permit under the Collective Investment Funds (Jersey) Law, 1988, as will any Jersey functionary such as the manager or custodian. Venture Capital funds with less than 50 investors can be set up as private funds under the Control of Borrowing (Jersey) Order 1958 and the structure of such Company or fund can be negotiated with the Jersey Financial Services Commission.
- Asset protection arrangements: an individual wishing to protect a portion of his wealth from creditors, whilst still retaining control over and use of those assets, could establish an LP whose general partner – with a minimal interest in the partnership assets – is a company owned and controlled by him. He would transfer certain assets into the partnership in consideration for the limited partnership interests – which are entitled to most of the partnership assets – and then settle those limited partnership interests on Jersey trustees. He would retain control over the general partner – and so over the LPs assets – whilst the Jersey trustees control the limited partnership rights.
- Private business ventures: persons wishing to invest capital in a new business venture which is likely to generate a sufficient cash flow to allow the capital – or part of it – to be returned to the investors within the foreseeable future, may prefer to invest in an LP which (unlike a limited liability company) would allow the return of the capital without the need for court approval or similar complications. The liability of persons who invested in the new business as limited partners would be limited in accordance with the terms of the Law. For taxation purposes, LPs are viewed as being “fiscally transparent” inasmuch as each of the partners will be separately assessed to tax and the LP will not be dealt with as a separate legal entity. Partners who are not resident in Jersey will only be liable to Jersey income tax on the partnership profits and gains if either (1) they arise from investment income (other than bank deposit interest) sourced in Jersey; or (2) they arise from a trade undertaken in Jersey.