Minister seeks finance law tweak to appeal to US fund managers

Wednesday 11 January 2023

Jersey will be more attractive to US fund managers if States Members agree to tweak a law to mirror structures already in place in offshore centres like Delaware and the Cayman Islands.

External Relations Minister Philip Ozouf, who also has responsibility for financial services, is asking the States Assembly to amend the law around Limited Liability Companies to allow them to be classed as ‘body corporates’.

The current law, which was first proposed in 2018 came into force in September, gives an ‘LLC’ a separate legal personality but it is does not allow them to be body corporates.

An ‘LLC’ is a corporate structure that protects its owners from personal liability or debt.

Similarly, a ‘body corporate’ is, in essence, a group of people who act together, which has a legal identity which is separate from those of its individual members.

The reason why Jersey chose not to class LLCs as a 'body corporate' was to offer something different to what the Cayman Islands already were.

But problems with that approach have since emerged.

A report accompanying the proposed amendment to the law states: “In drafting the current LLC Law, Jersey sought to differentiate itself from the Cayman LLC offering.

Pictured: Jersey had tried to differentiate itself from corporate structures offered by the Cayman Islands.

“The Cayman LLC Law specifically states that a Cayman LLC is a body corporate. The Jersey LLC in contrast specifies that LLCs are not bodies corporate. 

“Since the initial drafting, however, it has been recognised that specifying that a Jersey LLC is not a body corporate could prove problematic in a US context, where the concept of an entity having a separate legal personality, but which is not a corporation, is absent in US law. 

“LLCs registered or formed in US states such as Delaware and Wyoming comprise a unique business category, being neither corporations nor partnerships, instead having aspects of both. As a result, the nomenclature of ‘separate legal personality’ and ‘body corporate’ does not map easily onto the LLC laws of various US states.”

The report goes on to explain that a key reason for establishing LLCs in Jersey was their familiarity to practitioners across the globe.

It continues: “The JFSC will limit registration of a body corporate LLC to those business use cases where the majority of the body corporate LLC’s activity will occur outside Jersey and is limited to sophisticated investors and institutions. 

“As such, the body corporate LLC will not be available to local Jersey businesses in order to prevent ‘regulatory arbitrage’ by registrants between the Jersey body corporate LLC and the Jersey Company. 

“Accordingly, the amendment will have little or no impact on Jersey residents.”