Incorporated Limited Partnerships and Separate Limited Partnerships - key features
When establishing an investment vehicle, it is important to consider which type of vehicle will be most suited to the type of investment, its tax treatment, and the attractiveness or comfort of the proposed investment vehicle to the investors.
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With the introduction of the Separate Limited Partnership ("SLP") and Incorporated Limited Partnership ("ILP") Jersey today has one of the widest choices of legal entities, with the following forms of vehicles available for investment structures:
- Unit Trust;
- Protected cell company;
- Incorporated cell company;
- Limited Liability Partnership;
- Limited Partnership;
- Separate Limited Partnership; and
- Incorporated Limited Partnership.
The SLP and ILP are variances of the standard Jersey limited partnership, which has been in existence since 1994. However, they differ in that each of them has their own 'legal personality', which is similar to the Scottish limited partnership format but without the additional accounting and disclosure burdens that come with it. Neither an SLP nor an ILP will be classed as a 'qualifying partnership' under The Partnerships (Accounts) Regulations
Furthermore, an SLP or ILP will have a wider scope of business than the Scottish limited partnership, which requires a purpose of "carrying on business with a view to profit" as opposed to SLPs and ILPs, which can be established for any lawful purpose.
Key features of an SLP
The law governing SLPs is closely modelled on the Limited Partnerships (Jersey) Law 1994 ("LP Law"), save for the following key features:
- An SLP will have separate legal personality and will therefore be a separate legal entity from its members;
- An SLP will be unincorporated (i.e. it will not be a body corporate);
- The name of an SLP must end with the words "Separate Limited Partnership" or either the abbreviations "S.L.P." and "SLP";
- An SLP will still require a general partner. The general partner would still retain unlimited liability for the debts of the SLP, whilst the limited partners would retain the benefit of limited liability (subject to largely the same conditions as set out in the LP Law);
- The general partner may act on behalf of the SLP (similar to a limited partnership) or transact in the name of the SLP if preferred; and
- All property of an SLP shall be held for the benefit of the partners in accordance with the partnership agreement.
Key features of an ILP
The principal features of the ILP regime are summarised below:
- An ILP will also have separate legal personality, however as its name suggests, an ILP will be incorporated (i.e. a body corporate) meaning it will own property in its own name, contract in its own name and will be able to sue and be sued in its own name;
- The name of an ILP must end with the words "Incorporated Limited Partnership" or any of the abbreviations "I.L.P.", "ILP", "Inc. L.P." and "Inc LP";
- An ILP will have perpetual succession;
- Due to its incorporated status, the dissolution of an ILP will require a more formal process than the dissolution of an unincorporated limited partnership. The statutory winding up and dissolution provisions will be governed under separate regulations based on the equivalent Jersey company law provisions;
- The general partner of an ILP acts as an agent of the limited partnership (rather than as a partner of the partnership) and owes statutory fiduciary duties to the ILP similar to those a director owes to a Jersey company - for example, a general partner of an ILP is required to act honestly and in good faith with a view to the best interests of the ILP. The general partner also owes the usual duties directly to the limited partners of the ILP; and
- The general partner of an ILP is only responsible for the debts and other obligations/liabilities of the ILP after the partnership itself has defaulted. This is in contrast to the position in respect of general partners of LPs and SLPs, which have unconditional unlimited personal liability for the debts and other obligations/liabilities of the partnership (although in practice the unlimited liability of the general partner is usually dealt using a company as the general partner).
An advantage of being a body corporate is that most jurisdictions generally accept that a body corporate is governed by the law of the jurisdiction in which it is incorporated. This might be particularly important if there were perceived to be any risk that a limited partner might otherwise be treated by a non-Jersey court as having unlimited liability.
SLPs and ILPs will be treated in the same manner as ordinary Jersey limited partnerships for Jersey tax purposes, and will therefore not be assessable to Jersey tax. It is anticipated that SLPs and ILPs will be tax transparent for the purposes of income and capital gains tax, meaning that the limited partners are taxed in their jurisdiction on the value of their interests in the partnership.
The tax treatment of Jersey limited partnerships, including SLPs and ILPs, and their partners may differ in other jurisdictions, so specific advice is recommended.
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