Gibraltar Magazine – November 2016
Ian le Breton
I’ve been off on my travels again. The firm that I work for has over 20 offices worldwide and these include some pretty glamorous locations – Mauritius, Hong Kong, Dubai, Cape Town, The Bahamas, The Algarve, Malta and Cyprus, to name but a few. So where was my latest destination? Manchester.
It can claim to be the world’s first modern city and the powerhouse of the North, but it’s certainly not all muck and brass – or football for that matter. As any Mancunian will tell you, there is much to see in their great city and I liked it very much. The Whitworth Art Gallery in particular was a pleasant surprise and there is much more to enjoy besides.
Not that I was there for the art. The reason for my visit was the annual conference of the Society of Trust and Estate Practitioners – known as STEP for short. Some excellent speakers meant that I came away much more enlightened as to how the new changes to UK inheritance tax and various business reliefs will actually work in practice. It’s a lot more interesting than you might think, honest.
Anyone who has been to such a conference will know that one of the main benefits of attending is the opportunity it gives to meet up with other delegates in your industry. You run into old friends and chance upon new business contacts. You get to compare notes on the topics under discussion at the conference and share relevant experiences.
And so it was in Manchester. I wasn’t the only emissary from the Rock; my good friend Paul Astengo from Gibraltar Finance was also in attendance, representing our financial services industry from the impressive platform of the Gibraltar Finance stand. Here we were joined by a couple of industry colleagues from another Gibraltar firm, one of whom pleaded with me not to mention “Brexit” in my next piece because he was heartily fed up with the whole issue (Oops, I seem inadvertently to have mentioned it again).
The Gibraltar stand proved to be a popular calling point for the delegates and all was going swimmingly until a man interrupted whilst I was chatting to someone from (I’ll say it sotto voce) Guernsey. I’m sure you’ve met the type – his glass was most definitely half empty; in fact he may just have smashed it altogether by now. “What are you lot going to do?“ he snarled, “Now that the Rock is leaving Europe”.
I allowed myself to drift for a moment. The image he had conjured of Gibraltar departing Europe first annoyed, and then amused me. In my mind’s eye I saw some devious foreign power towing our lump of Jurassic limestone out into the Atlantic or even further afield. What nonsense. My reverie ceased when I realised he was still expecting an answer.
“We’re doing what everyone else is doing,” I said. “We’re all working very hard to ensure that it’s business as usual and to mitigate any potential downsides. And, of course, we’re looking to exploit any new opportunities”. He didn’t seemed convinced. “So where’s home for you?” I ventured. “Right here in Manchester, of course,” came back the reply. I resisted the temptation to remind him that Manchester was also heading for Brexit. Neither did I remind him that with 96% of Gibraltar’s voters ticking the box to “remain”, it certainly “wasn’t us what did it”, to misquote a famous headline.
Regular readers may recall that I have written about this topic several times this year – both before and after the 23rd June Referendum Day (crikey, it’s five months ago already) – so I won’t repeat myself. However the Mancunian was still there so I started to tell him about our financial services industry and the Gibraltar company regime in particular.
I pointed out the benefits – discussed many times previously in this column – of setting up a Gibraltar entity, whether it be for international trade or as a holding company. “But are you doing anything new?” he asked. I needed a proverbial rabbit to pull out of the proverbial hat. “Well, yes,” I said. “We have a very proactive government that is always looking to improve our toolkit for international business. In fact, we have just introduced LLPs.”
This seemed to take him by surprise and, for the first time in our conversation, his face registered an expression of genuine interest. So I pressed home my unexpected advantage and when he left the stand five minutes later, he did so clutching a swatch of Gibraltar marketing materials. It may not lead to anything, of course, but it did show that new flavours could still excite even the most jaded of palates.
So what are the benefits of an LLP and how does it work in practice? Well, the initials stand for Limited Liability Partnership and it combines the benefits of corporate status – the partnership has its own legal identity – and limited liability protection for members with the ability to operate and to be taxed as a traditional partnership. In other words, LLPs are “tax transparent”, which means that each member, rather than the partnership itself, is assessed to tax on their share of the LLP’s income or gains.
A partnership is one of the oldest and most basic of business structures. It is simply an arrangement in which two or more individuals share the profits and liabilities of a business venture. In a general partnership, all parties share the legal and financial liability of the partnership equally. In other words, the individuals are personally responsible for the debts and liabilities the partnership takes on. Profits are also shared equally, in principle, unless otherwise agreed in a partnership agreement.
Most professional firms used to be set up this way, as indeed did many local businesses, but there is a real disadvantage – the potential for unlimited liability. If something goes horribly wrong in the business, the partners’ homes and any other assets could all be at risk. A structure that offers the benefits of a partnership, whilst removing this liability is therefore highly attractive. Step forward the LLP.
Limited liability is possible because, unlike a general partnership, an LLP is established as a “body corporate”. It shares a number of characteristics with a regular company and is in fact legally separate from its members. An LLP can do anything a “natural” person can do such as holding property, entering into contracts and so on. It is fully liable for its debts and obligations but – and this is the key – the members’ liability is limited to the amount of capital that they have contributed.
A further advantage is that, as is the case with a company, an LLP continues to exist in the event of changes to its membership due to retirement or death. This is known as perpetual succession. Unlike a company, an LLP does not issue shares; membership combines the benefits of ownership and the right to manage the business. This flexibility can be advantageous for family-owned businesses or indeed private companies where owners are unwilling to dilute their shareholdings but recognise the need to incentivise long serving staff.
The LLP legislation came into force in Gibraltar on 24 March 2016 under the terms of the Limited Liability Partnerships Act 2009. There must be a minimum of two partners, who may be either individuals or companies. The LLP must be registered with Companies House, the Employment Service and the Income Tax Office but the partnership agreement is not filed nor open for public inspection. Annual accounts for both the business concerned and its partners must be submitted. There is no minimum capital contribution required.
Finally the LLP must maintain a registered office locally where its register of partners, accounts and other papers must be kept. A resident agent must also be locally based.
It remains to be seen how successful this new financial tool will be – much will depend on how we in the industry go about promoting it. But I welcome its introduction if for no other reason than being able to answer my “new friend” in Manchester. It shows that Gibraltar is still moving ahead, regardless of any referendum result, and that we are continuing to develop and broaden as a venue for international finance. And that is a very powerful message.