In this briefing, we take a look at the benefits of establishing a family office and investment vehicle in Jersey and the most common structures that can provide benefits such as asset protection, reputation management, privacy efficient tax management, efficient succession control and flexibility.
Jersey is one of the world’s leading international financial centers. Its successful combination of stability and reliability combined with fiscal neutrality has kept Jersey at the forefront of global finance for almost half a century.
During this time, Jersey has built a solid reputation as a prime location for establishing both family offices and investment vehicles. The industry has developed within the stable political and fiscal infrastructure of the Island, and the wealth of experience and expertise offered by the highly qualified financial service providers of the Island provides an experience unmatched to customers.
Many of the world’s wealthiest families have either been headquartered in Jersey or utilized the services of a locally regulated trust company as part of their operations. Increasingly, these families are using structures that closely resemble private funds to invest and manage a variety of assets.
These family investment vehicles (“IVFs”) can be set up quickly and economically and can give tailored voting, income and capital rights to family members. IVFs can be set up as one of many different vehicles – the precise structure will depend on the tax and governance framework required by the client. The most common are listed below.
Choice of vehicles
A mutual fund is not a separate legal entity, but is constituted by a written agreement, commonly referred to as a trust instrument, executed by a trustee, which is usually either a regulated trust company or an entity established specifically in the purpose of acting as trustee and holding ownership of the relevant assets.
The concept of a trust has been recognized in Jersey for over a hundred years and trusts are generally governed by the provisions of the Trusts Act (Jersey), 1984.
The interests of investors in a mutual fund are represented by units, which may carry equal or weighted rights to capital and / or income. Neither the fiduciary document nor the register indicating the identity of the unitholders are public documents. Control is exercised at the level of the board of directors of the trustee, which may appoint one or more investment managers / advisers to assist it. Unitholders may also be granted control / voting rights similar to those attached to the shares of a company. There is generally no obligation to file an annual statement or accounts and no audit requirement. Mutual funds can normally be structured as transparent or opaque for tax purposes and may also, in certain circumstances, be opaque for income purposes but transparent for capital purposes.
Limited partnerships (“LPs”)
Limited partnerships are now the preferred vehicles of many structures investing in illiquid assets and can be formed in three ways:
- Jersey “Traditional” Limited Partnerships (“JLP”), which are similar to English limited partnerships, are established under the Limited Partnerships Act 1994 (Jersey);
- Separate LPs (“SLPs”), which have separate legal personality and are therefore similar to Scottish LPs, are established under the Separate Limited Partnerships Act 2011 (Jersey); and
- Incorporated Limited Partnerships (“ILPs”), which have separate legal personality and are legal persons, are incorporated under the Limited Partnerships Act 2011 (Jersey).
A JLP / SLP / ILP is usually created by a written limited partnership agreement that is signed after the LP has been issued with a certificate of registration.
A JLP / SLP / ILP consists of one or more general partners who have unlimited liability for all debts of the company and one or more limited partners, who are not liable for debts of the company in excess of the amounts that they bring or agree to bring.
Neither the limited partnership agreement nor the register indicating the identity of the limited partners is a public document. There is generally no obligation to file an annual statement or accounts and no audit requirement.
The interests of investors in an LP are represented by limited partnership interests, and there is great flexibility in defining the scope of limited partners’ rights (including redemption rights), from any right of any partner to receive deferred interest, share profits and / or other payments and the extent of any restriction at the discretion of the general partner.
Control of an LP is exercised at the level of the board of directors of the general partner (which may appoint directors or advisers as needed) – a limited partner may not participate in the day-to-day management of the LP but may be involved in certain decisions. keys by consent or voting rights.
JLPs and SLPs are generally treated as transparent for tax purposes and the advice of the board is that ILPs should receive the same treatment.
Companies are incorporated under the provisions of the Companies Act 1991 (Jersey) and are governed by the provisions of a constitutional document known as a memorandum and articles of association.
The relevant Jersey law is based on UK company law, but with some improvements which allow for a more flexible and practical regime. It therefore allows families and managers to operate in a familiar legal landscape but to operate with greater freedom. Here are some highlights: no legal requirement for directors resident in Jersey, a flexible capital maintenance scheme (allowing distributions, redemptions or redemptions of shares to be made on the basis of a solvency test and ‘be financed from virtually any source) and no legal pre-emption on share issues or transfers.
The interests of investors in a company are represented by shares, and different classes of shares can be established with different income, capital and voting rights. A company’s share register and articles of association can be viewed by the public, but nominee shareholder agreements can be used for enhanced confidentiality if necessary.
Control is exercised by the board of directors of the company – the articles of association may however grant shareholders specific consent or voting rights.
It is also possible to create protected cell companies and incorporated cell companies that effectively confine investments and investor interests within a single structure.
All of the aforementioned vehicles may be established in a manner which allows influence and control to be exercised in a prescribed manner – either through the trustee, general partner or board of directors of the company, or by setting up supervisory, guidance or investment committees. All vehicles can also effectively control the transfer of investor interests and require mandatory redemption of interest under certain circumstances.
It’s hard to overstate the flexibility inherent in Jersey structures – it’s very rare that we see customer demand that cannot be met.
Investment vehicles which are established for the purpose of holding and managing family assets generally do not fall under Jersey fund regulations on the basis that offers of interest are not made to third parties and the guide Jersey Private Fund (JPF) specifically exempts agreements between family ties, which is broadly defined from the application of the JPF Guide. A properly structured IVF as a joint venture between various family members will also not require authorization as a fund in Jersey.
A Jersey Special Vehicle (“SPV”) may be established to act as a trustee, general partner, manager or investment advisor of an IVF. These SPVs generally do not need to be regulated as it is generally possible to establish the VIF as a “professional investor regulated system” for Jersey purposes, which triggers key exemptions from the regulatory requirements of the VIF. financial services. It is, however, common for each VIF and SPV to be offered administrative services by a regulated trust company in Jersey, as specialized administration, compliance and governance services are often required by clients.
If there is a desire to expand the investor base of an IVF beyond family and fundraising from third parties, or if the above exemptions are not available, then a JPF is a excellent choice as a fund investment vehicle. A JPF can be authorized on an accelerated basis and benefits from lighter regulations compared to a UCITS. Please see here for more details on the JPF diet.
The increasingly sophisticated demands of wealthy individuals and their families have resulted in a notable increase in the use of IVF. Each offers a combination of typical client key requirements – asset protection, reputation management of confidentiality, effective tax management, effective estate control and flexibility.
Jersey’s neutral, transparent and user-friendly positioning and the strength of its service providers have led Jersey vehicles to become the first choice for IVF.
Carey Olsen has considerable experience in developing and implementing these structures and our partners, who sit on industry and government working groups, have been directly involved in drafting applicable laws and regulations. We are ideally placed to help our clients plan for the future of their wealth and their families.
Originally posted Jun 02, 2020
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.