Establishment of an AIF in the form of a Limited Liability Partnership

by:STAVROS IOANNOU

With the enactment of the Alternative Investment Funds (AIF) Law, Cyprus is able to offer the full spectrum of legislative framework to all fund products, both UCITS and non-UCITS.

In accordance with the Law, an AIF may be set up in one of the following legal forms:

  • as a mutual fund;
  • as an investment company in the legal form of a Limited Liability Company with shares;
  • as a Limited Liability Partnership.

This article refers to the third option only, and in particular the establishment of an AIF in the form of a Limited Liability Partnership.

In general, Cyprus law recognizes two forms of partnership, namely the General and the Limited Liability Partnerships. A partnership, unlike a company, is not a body corporate and is not therefore characterized by a separate legal personality. In essence, it is merely a description of the relationship between the partners, as is evident from s.5 of the General and Limited Partnerships Law Cap. 116, as amended from time to time, which sets forth the following definition:

‘Partnership is the relation which subsists between persons carrying on a business in common with a view of profit.’

Where an AIF operates in the form of a Limited Liability Partnership, it shall be registered in accordance with the provisions of the General and Limited Partnerships and Trade Names Law, and its exclusive purpose shall be the collective management of its own portfolio through its general partner, acting to the benefit of its partners.

A limited partnership consists of at least one general partner liable for all the debts and obligations of the partnership and one or more limited partners who, at the time of joining the partnership, must contribute a stated amount to its capital. Beyond this contributed amount, a limited partner is not liable for the debts and obligations of the partnership.

It must be emphasized that the limited liability partners of an AIF, in the form of a Limited Liability Partnership, shall not be responsible for the debts or the liabilities of the partnership, beyond the amount of their contribution in accordance and beyond the value of the units acquired in accordance with the AIF Law. In addition to the above, the limited liability partners of an AIF established in the form of a Limited Liability Partnership, do not interfere in the management of the partnership and do not represent the partnership against third parties.

An AIF which has been set up in the legal form of a Limited Liability Partnership, shall only have one general partner. The general partner, contrary to the above provisions regarding the limited partners, shall exercise the management of the partnership, as well as to represent the partnership against third parties. In addition, the general partner is responsible for all the debts and liabilities of the partnership and exercises the duties and undertakes all responsibilities of the external manager of the partnership, always taking into consideration the provisions of the AIF Law, as amended from time to time, regarding the appointment of the general partner.

Why Set Up Your Alternative Investment Fund in Cyprus

Cyprus offers a range of incentives to address and meet the needs of AIF investors and promoters from a legal, tax and regulatory perspective. Cyprus, with its developed infrastructure, maintains a highly professional workforce to provide support to AIFs. The legal system is based on English common law and the legal, accounting and banking sectors are highly developed. Additionally, Cyprus has one of the lowest corporate tax rates in Europe (12,5%). It is important to highlight that Cyprus is not considered an offshore tax haven. The tax legislation and tax regime in Cyprus is in full conformity with both European Union Laws and Directives and with the Organisation for Economic Cooperation and Development (OECD). Numerous other benefits are offered such as full exemption from tax on gains from trading in securities and a generous participation exemption regime on foreign dividends, in conjunction with an extensive network of double tax treaties for international tax planning both at an individual as well as at a corporate level.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought on your specific circumstances. For further information, please contact Mr. Stavros Ioannou at stavros.ioannou@kyprianou.com.cy