Mauritius introduces LLPs
The Limited Liability Partnership Act 2016 (the "Act") has introduced limited liability partnerships ("LLPs") in the laws of Mauritius. The Act is aimed to further equip the Mauritius international financial sector with innovative tools with a view to explore new markets, contribute to growth and compete on a level playing field with jurisdictions such as Jersey, Hong Kong, Singapore, Dubai and Guernsey.
The Act applies to those persons offering professional and consultancy services, holding global legal advisory services licences (another relatively new addition in the Mauritius regulatory landscape) or such other activities that may be prescribed. LLPs are perceived to be an alternative business vehicle that not only afford the comfort of limited liability but also provide flexibility to their members to organize their internal governance structure based on a negotiated tailor-made partnership agreement. The introduction of LLPs will inevitably attract a certain type and calibre of foreign professionals as well as assist in retaining and fostering local talent. It can be seen to be a further step in the diversification of the Mauritius international financial centre by targeting global law firms, investment banks, asset managers, private equity, venture capital firms and fund managers who may find the LLP as the most appropriate vehicle in terms of the commercial efficiency, familiarity and comfort it provides taking into account its tried and tested features.
A convenient hybrid which seeks to attain the principal benefits of a company and a partnership, the structure of an LLP should not be confused with that of a limited partnership, where general partners are jointly and severally liable for all debts and obligations of the limited partnership. Essentially the LLP will be a body corporate having separate legal personality distinct from that of its partners, providing the flexibility of a partnership whilst also affording the owners the benefits of limited liability up to the amount of their respective contributions. The Act is all encompassing, catering for the incorporation of the LLP leading up to its winding up, with management and administration of the affairs of the LLP featuring prominently.
In this regard, three core features of LLPs under the Act are:
i. A partner is accountable and liable only to the extent of his own wrongful acts or omissions, there exists limited liability protection against malpractice suits that stem from another partner's negligent acts.
ii. the partners will be liable only to the extent of their respective contributions (except in the event of insolvency); and
iii. each partner's role in the decision making process of the LLP will be defined in the partnership agreement.
The mutual rights and duties of the partners of an LLP are governed by a partnership agreement, which determines the manner in which the affairs of the LLP shall be conducted. Every LLP is required to have at least two partners and at least one manager, who needs to be a natural person and is resident in Mauritius, save for an LLP holding a Category 1 Global Business Licence, ("GBL1") where the manager must be a licensed corporate services provider. The Registrar of Limited Liability Partnerships ("Registrar") maintains a register containing a record of all LLPs registered in Mauritius and the information contained in that register includes details of the partners. The register is available to the public for inspection on payment of a prescribed fee. However, for an LLP holding a GBL1 or having at least one partner holding a GBL1, the information available to the public is restricted to:
i. the name and address of the registered office of the LLP; and
ii. the name and address of any management company appointed by the LLP.
Any other information held by the Registrar for that LLP is only available for inspection purposes by a partner, an officer of the LLP or the Financial Services Commission ("FSC"). Such a measure brings about the desired level of confidentiality to the organization of businesses. It should be noted however that the Registrar has significant powers of surveillance and may require an LLP to produce any book, record or other document required to be kept by the LLP or in relation to its accounting records. In addition, for LLPs holding a GBL1 issued by the FSC, the Registrar is required to report to the FSC any non-compliance with the Act or any activity which is unlawful, contrary to public interest or which may cause prejudice to the good repute of Mauritius as an international financial centre.
Benefits attributable to LLPs include flexibility for perpetual succession and any change in the partners does not affect the existence, rights or liabilities of the LLP unless the partnership agreement provides otherwise. Corporate and unincorporated bodies may also convert as LLPs although little has been provided at this stage in terms of the procedure to be adopted to achieve such conversion. In addition, registration and continuation of foreign incorporated LLPs to continue operations in Mauritius has also been given due consideration under the new law.
The tax treatment for LLPs will be similar to that of a "resident societe" for the purposes of the Mauritius Income Tax Act 1995. So long as the LLP has its seat in Mauritius or has at least one partner resident in Mauritius, an LLP is a tax transparent entity. An LLP holding a GBL1 from the FSC may opt to be taxed as if it is a company. Where it instead elects to be a tax transparent entity, each of its partners being tax resident in Mauritius will individually be liable to tax on such partner's share of income. Partners who are not tax resident in Mauritius shall not be liable to any tax in Mauritius in respect of their share of income which is not derived in Mauritius. It is to be noted that LLPs holding a GBL1 and opting to be tax opaque can benefit, as do other vehicles licensed as GBL1s, from the wide range of Double Taxation Agreements (DTAs) and Investment Promotion and Protection Agreements (IPPAs) that Mauritius has with several other countries.
LLPs as the latest entrant in the financial services landscape in Mauritius are an attractive proposition for fund managers, lawyers, auditors, accountants, and other professionals and it is with particular interest that observers will follow the evolution in the type and calibre of investors looking to make use of Mauritius as a structuring and investment platform on the global stage. Given the distinct advantages that an LLP offers, there is little doubt as to its positive impact on the financial services sector in Mauritius.