As noted in the January 2019 publication, the entering into force of the LLC Law was dependent on an appropriate framework of legislation being adopted to support the establishment of such limited liability companies (LLCs) in Jersey.
The LLC Law has itself now been amended by the Limited Liability Companies (Amendment) (Jersey) law 2020 and an overview of the significant changes are detailed below. The States of Jersey have now closed what is expected to be the final consultation stage in respect of the enabling regulations/legislation in order to implement and allow the registration of LLCs under the LLC Law (as amended). It is expected that by December 2020, the framework would be in place in order to allow the first LLCs to be registered in Jersey.
The introduction of limited liability companies into Jersey is primarily designed with the U.S. market in mind, but also with the possibility that other jurisdictions will be attracted to the LLC structure or that fund managers from outside the U.S. will use Jersey LLCs to attract U.S. investors. The main features of an LLC are:
- it has legal personality (so can sue and be sued and own assets in their own name);
- it must have at least one member;
- it has limited liability for its members;
- an LLC can have managers to run it (who need not be a member in the LLC) or the members can run the LLC themselves;
- the LLC agreement (the key governing/constitutional document of the LLC) will remain a private agreement and not be publicly available;
- treatment of Jersey LLCs will follow the U.S.-style “check box,” allowing a Jersey LLC to elect how it is to be treated for tax and accounting purposes, depending on underlying tax analysis and advice; and
- Jersey LLCs will be able to create separate series of members, managers, interests or assets, each of which will have separate legal personality. Such concept is similar to that already available in relation to Jersey cell companies (or the Irish ICAV or Luxembourg compartments).
Implications for the LLC Law under the Limited Liability Companies (Amendment) (Jersey) law 2020
As noted above, the LLC Law has been amended by the Limited Liability Companies (Amendment) (Jersey) Law 2020 (the LLC Amendment Law). Whilst the changes contained in the LLC Amendment Law are largely clarificatory in nature, amendments to the LLC Law of more significance include:
- disapplication of partnership customary law – the LLC Law originally included provisions whereby the customary law of Jersey applicable to partnerships would apply to an LLC except in so far as it was inconsistent with the express provisions of the LLC Law or nature of the LLC.
Following the implementation of the LLC Amendment Law, reference to such customary partnership law provisions has been deleted. Such deletion, given the hybrid nature of an LLC, takes the status of a Jersey LLC marginally closer to that of a U.S. LLC, being a legal entity governed by statute, rather than implying the customary principals applicable to partnerships; and
- changes to the duties of a manager – arguable the most significant amendment contained in the LLC Amendment Law is the amendment of the fiduciary duties of a manager.
Originally including duties to act honestly and in good faith with a view to the best interests of the LLC and to exercise the care diligence and skill that a reasonable prudent person would exercise in such circumstances, the LLC Amendment Law provides that the manager will no longer owe any duties to the LLC or any member of the LLC other than a duty to act in good faith in respect of the management of the LLC. The LLC Amendment Law also allows such duty of good faith to be expanded or restricted by the express provisions of the LLC agreement. Furthermore, any breach of duties may be authorised or ratified by all members of the LLC and the LLC will be able to discharge its liabilities as they fall due.
Such amendments align the fiduciary duties of the manger with those imposed by Jersey law on a director of a Company. By making such duties of the manager subject to the LLC agreement, the amendments further bring the Jersey LLC position in line with other jurisdictions, notably (but not limited to) the U.S., thereby making the application of good faith and fiduciary duties a principle of freedom of contract (i.e. the parties can agree the relevant duties within the LLC agreement rather than have such duties imposed on them by law).
How can we help?
Appleby has a broad corporate practice. Our jurisdictional coverage of Bermuda, BVI, Cayman, Guernsey, Hong Kong, Isle of Man, Jersey, Mauritius, Seychelles and Shanghai provides us with extensive coverage across international finance centers. We also have extensive experience of dealing with LLCs in the US and elsewhere and now our Jersey team will be able to offer advice and assistance in relation to LLCs in Jersey.