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Guernsey consults on limited liability companies

Thursday, 5 September, 2019

Guernsey’s legislative assembly, the States, has begun consulting on the introduction of limited liability companies (LLCs).

The move aims to attract funds from the US, where LLCs are widely used as structures for trading businesses, holding vehicles and special purpose vehicles in finance and investment structures. They combine features of both US corporations and partnerships – the limited liability of a company, and the constitutional flexibility, privacy, and tax-transparent structure (‘pass-through’ in US parlance) of a partnership. In many jurisdictions they can elect to be taxed in the same way as a corporation. LLCs are especially popular as a structure for hedge fund managers in operating master-feeder structures.

The consultation will test the level of demand for LLC legislation in Guernsey and identify the potential economic benefits, as well as gathering evidence on potential proposals and core features of the legislation. Responses must be submitted by 18 September 2019.

Guernsey is far from the first jurisdiction to consider LLCs as a way of attracting US funds. Bermuda and the Cayman Islands introduced similar legislation in 2016. According to Jersey Finance, which successfully lobbied for the introduction of LLCs in Jersey last year, they currently account for over two-thirds of all new transparent business structures formed in the US each year.

Jersey has not yet enacted its LLC legislation, but the Isle of Man did so in 1996. Manx government statistics indicate there have been between one and eight LLCs registered per annum in the Isle of Man for the five-year period between 2013 and 2017.

The UK and most other common-law jurisdictions have not enacted LLC legislation. However, Luxembourg has a very similar structure, the Societe a Responsabilite Limitee (SARL), a cross between a corporation and a partnership in which members’ liabilities are limited to their contributions. More than half of all Luxembourg companies are incorporated as SARLs.

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