Legislation is expected to be adopted by the end of this year which will enable the registration of limited liability partnerships (LLPs) in Jersey.

A draft law was recently released for consultation in response to a perceived need in the UK for such partnerships.The first LLPs were established under legislation passed by the US state of Delaware.

Delaware LLPs proved extremely attractive to lawyers, accountants and other professionals operating in a highly litigious environment.

Other US states have followed Delaware in introducing LLPs.

Differences between the US and UK legal systems mean that it is unlikely that the UK will ever become as litigious as the USA.

Nonetheless, it is widely accepted that UK society is becoming more critical and demanding of its professionals.

As the work under taken by professional firms becomes increasingly international, the risk of being sued in other jurisdictions increases P particularly in the USA where courts are far from reluctant to claim jurisdiction over non-residents.

The lifting of the rule that solicitors must carry on business either as sole traders or in partnership started the debate on whether traditional partnership is the most appropriate vehicle for solicitors.

The problems caused by the recession and a number of large claims recently made against firms of lawyers and accountants have added urgency to the debate.

The Jersey LLP will offer significant advantages over incorporation in getting the most from limited liability.

Under the draft legislation, any existing or newly formed partnership will be eligible to register as an LLP and all partners will be entitled to participate in management.

No change in partnership structures or culture is required.

This contrasts favourably with incorporation, which involves a complete change of structure with partners becoming shareholders and directors being appointed to manage the company.

It also has advantages over the Delaware law which permits only limited partnerships managed by a general partner to register as LLPs.Under the draft legislation, an LLP will be a legal person distinct from its partners and an LLP is intended to have all the powers of a natural person.

The draft law will be subject to amendment following the consultation process; the powers of an LLP are expected to be clarified in any re-draft.

There will be no limit on the number of partners and companies, and LLPs as well as individuals may become partners in an LLP.

To establish an LLP a declaration must be filed with the companies registrar.

The details set out in the declaration would include the names of all the partners and the name and registered office of the LLP, but neither the partnership agreement nor any financial information need be filed.

An LLP will be required to submit an annual return setting out the names of the partners at the date of the return, but the LLPUs accounts need not be audited or filed.

Partnership affairs will, therefore, be confidential.

Again, this contrasts favourably with incorporation, where a company's accounts must be audited and filed and information concerning its financial affairs becomes public.An LLP will come into existence when the registrar issues a certificate of registration.

An LLP can be de-registered at any time unless it is in dissolution, when de-registration is permitted only after completion of the LLPUs winding up.

The draft law provides that an existing partnership is not dissolved by registration as an LLP and that de-registration of an LLP does not result in dissolution of the partnership.

Whilst this appears to offer an advantage over incorporation, it is open to question whether such provisions will be given effect outside Jersey.

As an LLP will have legal personality, it is possible that English law would hold that registration of a partnership as a Jersey LLP results in dissolution of the partnership.

This is clearly an area on which any firm considering registration as an LLP will need to satisfy itself.

An LLP will not be dissolved as a result of the admission of new partners or the retirement of existing partners, but if the number of partners falls below two or the LLP is declared bankrupt it will be automatically dissolved.

The courts will have power to order dissolution of an LLP in certain circumstances.There are to be no restrictions on an LLP making distributions to its pa rtners.

However, a distribution will be repayable if the LLP is insolvent at the time it is made or becomes insolvent as a result of a claim which was either outstanding at the time the distribution was made or was made within six months thereafter.

Despite having legal personality, the Jersey LLP will be treated as a partnership for tax purposes, such treatment being similar to that of Scottish partnerships.

The tax treatment of an LLP will be determined by the laws of the country in which it is based, but registration as an LLP should generally be tax neutral.THE NEW DRAFT LAW-- LPS will have legal personality.-- Partners not liable for LLP's debts or losses.-- Financial provision of £5 million to be maintained.-- No limit on the number of partners.-- No requirement for a general partner.-- No requirement that accounts be filed.-- Transparency for tax purposes.