INTRODUCTION OF LIMITED LIABILITY PARTNERSHIPS IN GUERNSEY FEBRUARY 2014 INVESTMENT FUNDS & PRIVATE EQUITY W W W.C A R E YO L S E N.C O M B R I T I S H V I RG I N I S L A N D S C AY M A N I S L A N D S GUERNSEY JERSEY C A P E TOW N LO N D O N 1 / FEBRUARY 2014 INTRODUCTION OF LIMITED LIABILITY PARTNERSHIPS IN GUERNSEY
INTRODUCTION In response to increasing client demand for limited liability partnership structures based in Guernsey ( LLPs ) the States of Guernsey has recently approved a draft law entitled The Limited Liability ships (Guernsey) Law, 2013. It is expected that the draft law will receive Royal Assent in due course and should come into force prior to July 2014. It is hoped that the new law will provide an alternative, but internationally recognised, structure through which clients can conduct business. KEY FEATURES OF AN LLP The key features of an LLP are that: it is a body corporate with unlimited capacity and its own legal personality separate from that of its members; it may be formed in Guernsey to carry on lawful business with a view to profit, or any other lawful activity; a member is not liable for any debt of the LLP, or of any other member, by virtue solely of their membership of it; a member s liability to contribute its funds, and specifically a shortfall on its winding up, will be limited to whatever the member has agreed with the other members or with the LLP to contribute; it owns its own assets and is subject to the duties and liabilities of the business to the exclusion of its members; it carries on business itself with the members acting as its agents; a private written agreement must govern the rights and duties of the members as between themselves and the rights and duties between the members and the LLP itself; it is not a partnership and Guernsey partnership law does not apply to it; and it will be transparent for Guernsey income tax purposes. INCORPORATION AND RESIDENT AGENT The application process for the incorporation of an LLP is designed to be straightforward and may be processed online. However, an LLP can only be incorporated by a corporate service provider ( CSP ) who will pay the prescribed fee and file an incorporation statement setting out: the name of the LLP (which must end with Limited Liability ship, LLP or llp ); the name and address of the resident agent (if required); the name and address of the principal place of the LLP s business; and the address of the LLP s registered office (which must be in Guernsey). 2 / FEBRUARY 2014 INTRODUCTION OF LIMITED LIABILITY PARTNERSHIPS IN GUERNSEY
The LLP must have a resident agent who is either an individual member of the LLP resident in Guernsey or a CSP unless it is a closed ended or open ended fund or is exempted by law. The duty of the resident agent is to ascertain and keep a record of the beneficial owners of the LLP. MEMBERS OF THE LLP An LLP must have at least two members. A member can be either a natural person or a body corporate but must not be a minor or a person disqualified from acting as a director of a company, a councillor of a foundation or a member of an LLP in Guernsey or elsewhere. A person can cease to be a member in accordance with the members agreement or, in the absence of any provision in the agreement, by giving three months notice in writing to the other members of the LLP. A member may also cease to be a member as a result of death or dissolution. RECORD-KEEPING An LLP must keep the following documents at its registered office: the register of members; the name and address of its registered agent; the members agreement; the accounting records; the minutes of all meetings of the members; and all documents filed with the registrar. All of the above records must be made available for inspection by the public during ordinary business hours unless the members agreement provides otherwise. However, the register of members must be open during ordinary business hours for inspection by any member or any member of the public for a fee. FILING REQUIREMENTS Before 30 June each year, an LLP must file an annual validation and a declaration of compliance with the registrar. If an LLP fails to submit the required documentation it will be guilty of an offence, and will be liable to a daily default fine and liable to be struck off the register. RIGHTS AND DUTIES OF MEMBERS AND THE RELATIONSHIP BETWEEN THEM AND THE LLP The law of partnerships does not apply to LLPs. Therefore the rights and duties of members between themselves and between the members and the LLP will be governed by the members agreement which must be in writing. Unless the members agreement stipulates otherwise, the following principles will apply to an LLP: All members will share equally in the profits of the LLP; every member may take part in the conduct and management of the LLP; and each member must render true accounts and full information of all things affecting the LLP to any member or his legal representative. 3 / FEBRUARY 2014 INTRODUCTION OF LIMITED LIABILITY PARTNERSHIPS IN GUERNSEY
Unless there appears to have been fraudulent or wrongful trading in the course of the winding up, a member s liability is limited to the amount of capital he has contributed or agreed to contribute to the LLP. Every member of the LLP is an agent of the LLP and can bind the LLP unless they are not authorised to act, or they have ceased to be a member and the person dealing with the LLP knows they have no authority or has notice that they have ceased to be a member. Unfair prejudice A member of the LLP will be able to petition the court for an order on the ground that the LLP is being run in a manner that is unfairly prejudicial to the interests of that member. The court may then regulate the conduct of the LLP s affairs in future, and/or require the LLP to do or refrain from doing the act that has been complained of. The members have the power to exclude unfair prejudice claims by the members agreement. Derivative claims A derivative action arises where the LLP may have a legal claim against a third party, and the members decide not to pursue that claim. A member can bring a claim requiring the LLP to bring that claim against the third party where he or she believes it is in the best interests of the LLP. The members have the power to exclude derivative claims by the members agreement. CONTRACTS AND EXECUTION OF DOCUMENTS A contract may be made on behalf of an LLP by a person acting under its authority, express or implied. A document is executed for and in the name of an LLP by signature of a member of the LLP and an LLP may give a power of attorney to any person to represent it and act in its name and execute documents on its behalf. MIGRATION IN An overseas LLP will be able to apply to be registered as a Guernsey LLP, subject to a number of requirements: It must be authorised to be registered as a Guernsey LLP by the jurisdiction in which it is incorporated; It must not be in liquidation, receivership or administration; It must satisfy the solvency test, that is, it must be able to pay its debts as they fall due and the value of its property must be greater than the value of its liabilities; and If the overseas LLP is regulated in its home jurisdiction, it must apply for the consent of the Guernsey Financial Services Commission ( GFSC ). Migration into Guernsey will not create a new legal person; rather the existing entity will be transferred to and fall within the remit of the jurisdiction of Guernsey. 4 / FEBRUARY 2014 INTRODUCTION OF LIMITED LIABILITY PARTNERSHIPS IN GUERNSEY
MIGRATION OUT A Guernsey LLP will be able to apply to be removed from the register and migrated to another jurisdiction, subject to a number of requirements: It must not be in liquidation; Her Majesty s Procureur must not object to its removal; It must be able to satisfy the solvency test immediately before removal from the register; It must provide written notice to its creditors stating that it intends to apply for removal from the register; and If the LLP is regulated by the GFSC, it must apply for its consent. Migration out of Guernsey will not create a new legal person; rather the existing entity will be transferred out of the remit of the jurisdiction of Guernsey. CONVERSION OF A FIRM TO AN LLP A Guernsey partnership will be able to apply to convert to an LLP if the members of the LLP will be the same as the current members of the firm and they have published a notice in La Gazette Officielle inviting persons interested to make representations to the registrar relating to the conversion. In order to apply for conversion, a firm must file a statement signed by all members containing the name of the firm and the name of all the partners and such other information as the registrar will prescibe, an incorporation statement and the relevant fee with the registrar. Upon incorporation by the registrar, all property, liabilities and obligations vested in the firm will be transferred to and vest in the LLP, and the firm will be dissolved. All agreements, contracts (including employment contracts) security documents and licences issued in the name of the firm will continue and be enforceable against the LLP. Every partner of a firm that converts to an LLP will continue to be personally liable, jointly and severally with the LLP for the debts of the firm that were incurred before conversion or which arise from any contract entered into before conversion. If a member pays off any debt he will be entitled to be fully indemnified by the LLP unless the members agreement provides otherwise. Every appointment of the firm or the partners in any role or capacity together with any authority or power which is in force immediately before the date of incorporation shall have effect from that date as if the LLP were appointed or had the authority or power conferred upon it. 5 / FEBRUARY 2014 INTRODUCTION OF LIMITED LIABILITY PARTNERSHIPS IN GUERNSEY
ADMINISTRATION A member, creditor, liquidator or the GFSC (where the LLP is supervised) will be able to apply to the court for an order that an administrator be appointed to manage the affairs, business and property of the LLP if the court is satisfied that the LLP does not satisfy the solvency test and the order may achieve the survival of the LLP as a going concern, or a more advantageous realisation of the LLP s property than would be effected on a winding up. An order of the court appointing an administrator will result in a moratorium on winding up orders and proceedings other than enforcement under any security documents. DISSOLUTION An LLP may be wound up and dissolved upon the occurrence of any of the following events: An event specified in the members agreement; The written agreement of all members that the LLP shall be wound up; The making of a court order, if the court is of the opinion that: It is not reasonably practicable for the LLP s business to carry on; The LLP cannot satisfy the solvency test; The LLP is indebted to a creditor for a sum exceeding 750, the creditor has demanded payment of the debt and it has not been paid within 21 days; The LLP is being conducted in a manner which is prejudicial to its business; The LLP is being conducted in a way which defrauds creditors; Persons connected with the LLP have been guilty of fraud or other misconduct; The LLP ought to be wound up for the protection of the public; or It is just and equitable to wind up the LLP. Where the winding up is a result of an event in the members agreement the relevant person appointed in accordance with that agreement will wind up the affairs of the LLP. Where the winding up is as a result of a court order the court shall appoint a liquidator to wind up the affairs of the LLP. If during the course of the winding up, the LLP has gone into insolvent liquidation and a person knew or ought to have concluded that there was no reasonable prospect of the LLP avoiding insolvent liquidation, and that person was a member of the LLP at the time, the court may declare that person shall be personally liable to make such contribution to the LLP s assets as the court thinks proper. 6 / FEBRUARY 2014 INTRODUCTION OF LIMITED LIABILITY PARTNERSHIPS IN GUERNSEY
STRIKING OFF The registrar will be able to strike off defunct LLPs from the register by way of a published notice where he has cause to believe that the LLP is not carrying on business or that it is being wound up and no liquidator is appointed or its affairs are fully wound up. The registrar will also be able to strike off defaulting LLPs two months after a published notice where: An LLP fails to deliver an annual validation An LLP has failed to comply with a request for beneficial ownership information from the resident agent It appears to the registrar that the LLP has only one member The LLP is in persistent or gross contravention of the law. If an LLP is struck off its property and rights shall become bona vacantia belonging to the Crown. An LLP that has been struck off may be restored to the register at the discretion of the court where the court is satisfied that at the time it was struck off it was carrying on business or otherwise it would be just and equitable for the LLP to be restored to the register. 7 / FEBRUARY 2014 INTRODUCTION OF LIMITED LIABILITY PARTNERSHIPS IN GUERNSEY
CONTACT US For further information or professional advice please contact our lawyers below. GUERNSEY T +44 (0)1481 727272 Carey House PO Box 98 Les Banques St Peter Port Guernsey GY1 4BZ Channel Islands CHRISTOPHER ANDERSON T +44 (0)1481 741537 E christopher.anderson@careyolsen.com ANDREW BOYCE T +44 (0)1481 732078 E andrew.boyce@careyolsen.com TOM CAREY T +44 (0)1481 741559 E tom.carey@careyolsen.com DAVID CROSLAND T +44 (0)1481 741556 E david.crosland@careyolsen.com GRAHAM HALL T +44 (0)1481 732028 E graham.hall@careyolsen.com BEN MORGAN T +44 (0)1481 741557 E ben.morgan@careyolsen.com Please note that this briefing is only intended to provide a very general overview of the matters to which it relates. It is not intended as legal advice and should not be relied on as such. Carey Olsen 2014 8 / FEBRUARY 2014 INTRODUCTION OF LIMITED LIABILITY PARTNERSHIPS IN GUERNSEY