Nov 29, 2024
KEY TAKEAWAYS
The key advantage of the LLC is that its owners have limited liability protection - their personal assets can be protected from the debts and liabilities of the LLC. In financial services, both the Cayman Islands and the US state of Delaware have developed popular LLC regimes that are widely used for investment funds, for financing purposes, or in holding company structures.
Jersey LLCs operate under similar rules and have similar advantages to the Cayman and Delaware models that will be familiar to US professionals.
Although US LLCs are used by SMEs as well as international organisations, the focus of the Jersey LLC is on financial services - for use as a carried interest vehicle or feeder vehicle; to act as a general partner or manager; or for use by corporates as SPVs for financing purposes, joint venture vehicles or as the ultimate holding company for large public company structures. Whilst Jersey LLCs cannot be used as a collective investment fund, a Jersey LLC can be authorised as a Jersey Private Fund and an Alternative Investment Fund, allowing it to be marketed to EU investors under the Alternative Investment Fund Managers Directive ("AIFMD") third country private placement rules. Jersey LLCs can also be authorised to act as an Alternative Investment Fund Manager to a fund under Jersey AIFMD legislation. Jersey's leading professional services providers are able to provide the administrative and compliance support needed, whatever the Jersey LLC is used for.
This short note explores some of the basic features of the Jersey model - which differs slightly from the existing onshore and offshore versions.
Limited Liability
Members of the LLC benefit from limited liability protection, meaning that although they are liable for their contribution, beyond this they cannot be held personally liable for any debts or losses of the LLC (unless they expressly agree otherwise in the LLC agreement).
Separate legal personality
LLCs have their own separate legal personality, and so they can own assets in their own right, sue and be sued.
Tax
A Jersey LLC is tax transparent for Jersey taxation purposes. From a UK tax perspective, the existing Jersey LLP has historically been a popular choice for those wishing to benefit from the features of separate legal personality, yet retaining tax transparency. The Jersey LLC will offer a more familiar vehicle for US clients/promoters and, unique to Jersey, will allow an election to be made upon establishment to be treated as a 'body corporate', such that its tax treatment can be tailored to resemble either a company or a partnership for US tax purposes.
Flexibility
The LLC agreement is the main constitutional document of the LLC and is an agreement in writing setting out the rights and obligations of the manager and members. It offers a large degree of freedom to decide the terms upon which the LLC operates. For example, the LLC agreement can confer enforceable rights on a third party. Under Jersey's LLC legislation, there is no requirement for an LLC agreement to be made publicly available and so the terms upon which the LLC operates remain private.
Managers (rather than directors)
Managers can be appointed to manage the affairs of the LLC, or if preferred, the members can do this themselves. An LLC may be formed with a sole member. Managers are not subject to fiduciary duties unless set out in the LLC agreement but will be subject to a baseline duty of good faith and with the additional flexibility of a member approval procedure.
Europe
Subject to holding the required JFSC ("Jersey Financial Services Commission") fund permissions, an LLC will be able to market to EU investors under the AIFMD third country private placement rules, but a Jersey LLC is not subject to the UK's City Panel Takeover Code.
Regulated corporate services provider
LLCs must have a registered office in Jersey and this will usually be provided by a regulated Jersey corporate services provider (a "CSP") appointed to administer the LLC. The CSP will also usually supply a secretary (to fulfil the requirement under the LLC Law to have a secretary) and a 'nominated person' (for the purposes of the Financial Services (Disclosure and Provision of Information) (Jersey) Law 2020 (the "Disclosure Law")).
LLCs must register with the JFSC and disclose beneficial ownership and controllers
The registration process is quick, with fees varying according to whether a two hour or a five day service is required. LLCs are subject to the usual requirement for a 'COBO consent' under the Control of Borrowing (Jersey) Order 1958, which will be issued upon registration. Like companies and partnerships, LLCs must comply with the provisions of the Disclosure Law in relation to the disclosure of ultimate beneficial owners and controllers to the JFSC (although this information will not be made available to the general public).
AML/CFT regime
If LLCs carry on certain prescribed activities, they must register with the JFSC and comply with relevant provisions of Jersey's AML/CFT regime. Generally, the CSP would be appointed as the AML service provider to the LLC to ensure such compliance.
Economic Substance
If LLCs conduct certain "relevant activities", they must ensure that they meet the economic substance test set out in the Taxation (Companies – Economic Substance) (Jersey) Law 2019 (as amended), but there is no requirement for the inclusion of Jersey resident members or managers.
The Jersey LLC follows in the footsteps of similar legislation introduced in other offshore jurisdictions, such as the Cayman Islands and Bermuda, which allows our clients to benefit from our cross-jurisdictional experience in the structuring and use of LLCs.
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