Jersey Limited Liability Company (LLC) legislation to enhance pan-Atlantic business for US fund managers.

This month the Government of Jersey approved the new Limited Liability Company (LLC) legislation, which it is expected will further strengthen Jersey’s position as a leading international finance centre for US alternative fund managers.

We caught up with Paul St Romaine, Associate Director within Fairway’s Fund and Corporate Services team to find out more:

So what is a Jersey LLC?

 A Jersey LLC is a corporate entity with limited liability of its members. It offers a high degree of flexibility around its management and governance, and allocates profits like a partnership.

By default, a Jersey LLC has the tax transparency of a partnership. Since 14^th February 2023, and uniquely to Jersey, it can elect to be a body corporate.

It is expected to be favoured by US private equity, venture capital and other alternative fund professionals given its similarities with Delaware LLCs. The Jersey LLC offers speed and ease of registration, whilst being a cost efficient product.

Why did Jersey launch the LLC?

The Jersey LLC bolsters the existing Jersey product offering, adding important features to our structuring toolkit.

For example, as LLCs are already very popular in the US, and a structure familiar to US fund managers, there is an opportunity for the Jersey LLC to become a viable alternative to existing LLC vehicles in other jurisdictions.

Furthermore, Jersey LLCs offer US fund managers the ability to easily market into the EU, via national private placement regimes, further strengthening Jersey’s position as providing seamless access into Europe.

Jersey’s funds industry has seen consistent growth in the US market, with funds business from the US more than doubling in the last five years, according to Jersey Finance.

Why use a Jersey LLC?

The Jersey LLC benefits from a simple registration process and flexible governance requirements.

Whilst a Jersey LLC has separate legal personality it is not by default a “body corporate” and is therefore treated as tax transparent, in the same way as a partnership.  It can, however, elect to be a body corporate and be treated as a company for tax purposes. This is similar to the US “check the box” tax election.  The election is only possible upon registration and cannot be changed once made.

This approach is designed to provide maximum flexibility in structuring options for an LLC. As such, an LLC may be an appropriate vehicle for a range of uses in investment funds, joint venture companies, private equity transactions, securitisations and other corporate transactions and international structures.

"Bridging the Gap"

Jersey LLCs share similarities with leading regimes such as Cayman LLCs and Delaware LLCs. The product provides certainty for US managers looking to fundraise within the EU and expand their investor base. With the Jersey LLC able to market into Europe (subject to the usual fund permissions from the Jersey Financial Services Commission (JFSC) under the Alternative Fund Managers Directive (AIFMD) third country private placement rules), it can act as an alternative route to market whilst providing the comfort of a jurisdiction renowned for its regulatory regime and future certainty for marketing under AIFMD.

In conclusion we are delighted to be providing Jersey LLCs to our international client base. It’s a robust vehicle that complements the already respected stable of Jersey vehicles. It provides Jersey the opportunity to tap into the US market with a familiar vehicle which could lead to greater US investment into the island.

Key features of the Jersey LLC

For more details please see the >Jersey Finance factsheet

• Jersey LLCs have been modelled on leading LLC regimes, including Delaware and Cayman;

• legal personality and option to elect to be a body corporate, benefiting from limited liability;

• unique flexibility of LLC operating agreements will afford members the ability to structure and manage their undertaking as best suits their needs;

• governance of the LLC may be undertaken by one or more managing members acting by majority or by one or more appointed non-member managers;

• managers will not be 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

• no requirement for the inclusion of Jersey resident members or managers (subject to regulatory and economic substance requirements)

• simple registration process by way of certificate and consent to issue interests from the Jersey Financial Services Commission (JFSC), with the LLC Agreement not publicly available

• administration services to be provided on establishment and by a person registered under the Financial Services (Jersey) Law 1998 (FSJL)to carry on Trust Company Business (TCB)

• a Jersey LLC can operate as a Jersey Private Fund or as a manager to a Jersey Private Fund

• subject to the usual JFSC fund permissions, an LLC will be able to market to EU investors under the Alternative Investment Fund Managers Directive (AIFMD) third country private placement rules

• a Jersey LLC will be treated as transparent for domestic tax purposes in Jersey

• the Jersey LLC is not subject to the UK’s City Panel Takeover Code

• it can have its securities listed (debt or equity), although not if it is a Jersey Private Fund

• there is a straightforward summary winding up process, based on a solvency statement

Fairway Fund Services Limited, a regulated company under the Financial Services (Jersey) Law 1998, provides an experienced team that can assist with the set-up and administration of LLC’s.