A Guernsey Limited Partnership must be established with at least one general partner and one limited partner; however more than one general and limited partner is permitted.
General partners are jointly and severally liable for all of the debts of the partnership without limitation, whereas limited partners contribute or agree to contribute a specified amount in accordance with the partnership agreement, which is the limit of their liability.
Guernsey limited partnerships are fiscally transparent for the purposes of Guernsey income tax, meaning the profits (or losses) of the partnership are attributed proportionately to its partners in accordance with the partnership agreement; the partnership itself is not assessed for Guernsey income tax. This allows for tax planning opportunities where losses attributed to one partner may be used to reduce taxable profit accumulated from other operating activities.
Limited partnerships can elect at the time of registration to have separate legal personality. If it elects to do so, it will then be required to submit beneficial ownership information to the centralised register of beneficial ownership maintained by the Guernsey Registry, which is not publicly accessible. There is no requirement for limited partnerships that do not have separate legal personality to submit beneficial owner information to the Registry.
LIMITED LIABILITY PARTNERSHIP
A Guernsey Limited Liability Partnership (LLP) is in many ways the same as a general partnership, with the fundamental difference that the members of an LLP are not liable for any debts of the LLP (or any other member); their liability is limited to whatever each member has agreed with the LLP or other members, as set out in the Members Agreement on incorporation.
This limited liability is possible because, like a company, an LLP has a legal personality that is separate from its members. An LLP can do anything commercially that a natural person can do. It has the ability to enter into contracts, own assets and will continue in existence in spite of any change in membership. However an LLP is taxed like a partnership. Profits are only taxed in the hands of the members, so if a member is a non-Guernsey entity and does not trade in Guernsey, no Guernsey tax should be payable. An LLP must maintain a registered office in Guernsey where its register of members, accounting records and minutes must be kept. The LLP must also have a Resident Agent based in Guernsey. The LLP must file an Annual Validation and Declaration of Compliance with the Registry each year.
FAMILY LIABILITY PARTNERSHIP
A Guernsey Family Limited Partnership is a limited partnership that is formed under the Limited Partnerships (Guernsey) Law. There are many variations but, typically, a Guernsey company will also be formed to act as the general partner with responsibility for managing the FLP. The other partners – often family members who wish to benefit from the assets but have no responsibility for managing, and no liabilities in relation to, the partnership – would be the limited partners.
The general partner has unlimited liability for the debts of the FLP but as the partner is a limited company, this liability is limited. If family assets are transferred into an FLP, it allows the head of family to retain control whilst passing the value in those assets to other family members in a controlled and orderly manner that is without tax consequence.
The FLP behaves like a discretionary trust, with the general partner acting like the trustee and the limited partners like the beneficiaries. However if property was transferred to a discretionary trust there would be an immediate charge to lifetime IHT, as well as ongoing tax charges. This is not the case with a transfer of property to an FLP. Although there are no restrictions on the nature of assets that can be placed into a FLP, they tend to be used to hold assets such as property, securities or shares in a family business.
The partnership agreement can allow for the FLP to be wound up after a certain period, on the occurrence of an event such as the death of the transferor, or provide for continuity of the general partner and the structure. The agreement and the articles of incorporation of the general partner can set out an investment strategy and a management mechanism that can be maintained over multiple generations.
There will be no charge to tax in Guernsey, except on certain types of income that are sourced in Guernsey, and there is no requirement to file tax returns in Guernsey or for the FLP to be audited. If the general partner of a FLP is a Guernsey-registered company, it will be subject to 0% rate of tax on its profits. An FLP must be registered in Guernsey and file an annual validation with the Registrar each year. The identity of the limited partners is not disclosed on any public register.