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UK limited liability partnership (LLP)
Key features
- It has unlimited capacity as it has a separate legal personality and can therefore hold property, enter into contracts, sue or be sued in it's own right
- It offers limited liability protection for its members;
- There are no directors or shareholders of an LLP
- It has a flexible internal structure and is not required to have a Memorandum & Articles of Association
- All members of an LLP acts as an agent for that LLP.
- An LLP is required to deliver annual accounts and submit an annual return to Companies House
Aimed initially at professional partnerships an LLP will give businesses a further choice as to how they wish to operate. Arguably the traditional form of partnership is inappropriate for many partnerships operating today. A rise in the incidence of litigation with the size of claims increasing beyond insurance cover and a growth in the size of partnerships has caused increasing concern for both the large and smaller partnerships.
After incorporation the members have an obligation to file information and documents at Companies House:
- the Registered Office Address of the LLP
- names and residential address of the LLPs members
- annual returns;/li>
- annual accounts
This is the usual process for those businesses presently operating as a limited company but represents a higher level of reporting than the traditional form of partnership. It is therefore a business decision of the partners whether to incorporate as an LLP and gain the benefit of limited liability but sacrifice the degree of privacy usually afforded to traditional partnerships that have been able to keep accounts and partnership information confidential.
LLP's will produce and publish financial accounts with a similar level of detail to a similar sized limited company and will have to submit accounts and an annual return to the Registrar of Companies each year. This publication requirement is far more demanding than the position for normal partnerships and some specific accounting rules may lead to different profits from those of a normal partnership.
FAQ
- What is an LLP? It is an alternative corporate business vehicle that gives the benefits of limited liability but allows its members the flexibility of organising their internal structure as a traditional partnership. The LLP is a separate legal entity and, while the LLP itself will be liable for the full extent of its assets, the liability of the members will be limited.
- What is the difference between a Limited Company and an LLP? The main difference is that where Limited Companies are required to abide by the terms and conditions set out in their Memorandum & Articles, a Limited Liability Partnership has a much more flexible structure. An LLP is not required to hold formal board meetings or annual general meetings or pass resolutions.
- How is an LLP managed? The members agreed between themselves how to run the LLP. One advantage of an LLP over a limited company is the level of flexibility the members have to organise and manage themselves. Members are required to act in the best interests of the LLP and often choose to enter into an agreement or deed of partnership to regulate their dealings between themselves. This is not mandatory and this document does not need to be registered at Companies House, it is private to the members. The designated members are responsible for advising Companies House of changes in membership or registered office details, accounting reference date changes and other statutory filing.
- To what extent is personal liability limited? Because LLP's are a new type of entity, there is very little case history examining the extent of liability and precedents have not yet been set. In a professional firm scenario, if a member of a LLP were to give bad advice or otherwise act negligently towards a client and the client suffered a loss as a result, the client may be able to take the LLP to court and be awarded appropriate compensation either from the member who gave the advice or the partnership as a whole. It is unlikely that the other members who were not directly involved in the advice will have any personal liability, unlike a traditional partnership where they would have had joint and several liability for these actions. It is essential to note that this concept has not yet been tested in a court of law and it should not preclude anyone in this type of situation from having the appropriate insurance indemnity cover. It should also be noted that where the partnership becomes insolvent but continues to trade the members can be prosecuted for this offences and disqualified in the same way as a director of a limited company.
- What are the implications for Third Parties dealing with LLPs? Every member of a LLP is considered in law to be an agent of the LLP, and as such may represent and act on behalf of the LLP in all its business. As a third party would not normally have access to any partnership agreement they would be entitled to rely on the fact that the member is an agent of the LLP. Anyone entering into financial transactions, such as leasing or factoring agreements or lending money to the LLP may still require personal guarantees from the members in the same way that shareholders of a limited company often give guarantees as security.
- What are the LLP disclosure requirements? They are similar to those of a company. LLPs are required to provide financial information equivalent to that of companies, including the filing of annual accounts. Among other things, they are also required to: File an annual return, Notify any changes t the LLP's membership, Notify any changes to their members names & residential addresses, Notify any change to their Registered Office Address.
- How is an LLP taxed? An LLP is taxed as a partnership. The internal structure of the LLP is similar to that of a partnership. The members provide working capital and share any profits. Income derived by the members from the LLP will be closer to that of a partnership than to the dividends paid by companies. The Act also provides that any partnership converting to an LLP will receive relief from stamp duty on any property transferred in the first year, subject to conditions.