New LLC legislation set to attract further U.S. investment to Jersey18 Dec 2018
In a bid to attract further US investment and enhance the Island of Jersey's pan-Atlantic relationship with the US, Jersey's new Limited Liability Company (LLC) Law will enable investors to establish LLCs on the Island for the first time.
The Liability Companies (Jersey) Law (the "Law") was debated and approved by the Jersey government in September 2018 following an open consultation period inviting comments on the draft.
The 51st State - Jersey
The new Law is expected to increase Jersey's appeal as a jurisdiction of choice for US institutions, businesses and fund managers, building upon the £169 billion of US assets already administered in Jersey.
LLCs, historically based on mainland-European equivalents such as the GmbH and S.à r.l., have become a mainstay structuring entity for many investing into and out of the US. According to Jersey Finance, LLCs currently account for two-thirds of all new transparent business structures formed in the US each year and more often than not, LLCs are the vehicle of choice for US alternative investment funds for wide ranging purposes, including SMEs, SPVs, holding companies and fund structures.
Given the prevalence and familiarity of LLCs to US businesses, the introduction of Jersey LLCs is anticipated to aid in cross-border structuring requirements.
In drafting the Law and during the consultation period, careful consideration was given to ensure that Jersey LLCs fit within Jersey's existing regulatory and statutory framework, maintaining consistency with the Island's reputation as a leading, regulatory compliant finance centre.
The Law is still subject to Sanction by Order of Her Majesty in Council and is required to be registered by the Royal Court of Jersey, however, it is expected that the Law will be fully implemented in the next 12 months.
The flexibility of the Jersey LLC
It is proposed that the Jersey LLCs will combine characteristics of both Jersey limited companies and statutory partnerships, thus providing the limited liability protection of a company with the flexibility of a partnership. Jersey LLCs will also have the ability to elect to be treated as a company, rather than being transparent for tax purposes and will have a separate legal personality without being a body corporate.
LLCs have proved popular in investment and financial transactions in the competitive offshore market, with LLCs being offered in a number of jurisdictions including Cayman Islands, Isle of Man and Bermuda. However, given the prevalence and familiarity of LLCs in the US, by offering a product that is consistent with and recognised in that market, Jersey is set to benefit from a further influx of US business and see its existing reputation within financial services enhanced.
What will the Jersey LLC Law give investors?
- A Jersey LLC will provide a new product offering that provides US institutions, managers and advisors with a familiar and flexible vehicle, giving another option to those looking to do business in Jersey.
- Given the financial and political uncertainty following the UK's vote to leave the EU, Jersey's appeal to US investors has heightened. It is therefore opportune timing to enact the Law and place Jersey in a position for further US investment.
- A Jersey LLC will, as is the case with certain (but not all) US LLC jurisdictions, have the ability to create series - similar to cells in a protected cell company - with each having its own legal identity separate to that of the LLC. This will, therefore, enable the ability for series or 'cells' to contract and hold assets in its own name.
- As featured above, tax transparency with the option to elect to be treated as a company.
Other points to consider
- Jersey has historically, and in keeping with the UK, relied on the LLP as the jurisdictional equivalent to an LLC, mainly due to the fact that the LLP is thought to be more likely to be treated by the English Courts and HMRC as transparent for tax purposes. HMRC has stated its default position is to treat an LLC as a company however, recent developments and case law have indicated that LLCs may be treated as tax transparent. Further developments on this remain to be seen; however, LLPs remain a popular vehicle of choice in such instances.
- It is anticipated that a Jersey LLC will not be permitted to be authorised as a Collective Investment Fund. The JFSC licensing policy will need to be amended to include LLCs as, for example, fund services businesses. More information in relation to this is expected to follow in due course.
A jurisdiction of choice
The move to introduce the Law demonstrates Jersey’s commitment to legislative progression, encouraging investment into the Island on the back of US growth and uncertainty in the UK as a result of Brexit. The Law is yet to be brought into force but it is anticipated to be a positive development in Jersey's product offering, enabling improved international structuring.
At Ocorian we provide administration, fiduciary, trustee and special purpose vehicle services from all our key jurisdictions. We have significant expertise and extensive knowledge in administering a wide variety of vehicles, both within jurisdiction and multi-jurisdictional channels and also have representation in the US.
Tax advisers are naturally the first point of contact when considering the type of vehicle and domicile. Ocorian can assist with the establishment and all administrative matters and can make introductions with well-regarded tax advisors and legal counsels in the event of further advice being needed.