Limited Liability Partnership Questions Answered
What is a Limited Liability Partnership and how do I set one up
A LLP gives the benefits of Limited Liability in that it can protect your existing personal assets, while giving many of the Tax advantages of a sole trader partnership
You have to register with Companies House, the method is similar to registering a company.
The LLP will be 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. Under certain circumstances, however, claims for economic loss could be made against individual members who have been negligent. Any such claim would be a civil action outside the contract as the party would have contracted with the LLP.
The business is controlled by the 'designated members' (who have a similar responsibility to a directors / secretary of a Ltd Company) and the 'members'.
Capital is provided by the members, LLP's are similar to 'Partnerships' or 'Sole Traders' in this respect.
Incomes derived by the members will be closer to that of a 'Partnership' than to the dividends paid by companies.
An LLP will be taxed as a 'Partnership'. The members will provide working capital and share any profits.
The company is a legal entity in it's own right.
An LLP is an alternative corporate business vehicle (being introduced April 6th 2001) that gives the benefits of limited liability but allows its members the flexibility of organising their internal structure as a traditional partnership.
Any new or existing firm of two or more persons will be able to incorporate as an LLP in England, Scotland or Wales. It is not possible to convert a company to an LLP or vice versa. LLP's are not available to Charities, there must be a view to profit.
LLP's are similar to companies in the respect that they will be required to provide financial information equivalent to that of companies, including the filing of annual accounts. Also they must notify any changes to:
The LLP membership; members' names & addresses; the Registered office.
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.
In autumn 2000, Companies House commissioned independent market research to investigate demand for LLP incorporation.
The results of this research indicate that demand will come principally from existing partnerships, although there is also significant interest amongst sole traders and existing limited companies.
The research also shows that Accountants and Solicitors will be well represented amongst early adopters of LLP status.
When did they appear?
The Limited Liability Partnerships Act 2000 came into force on 6 April 2001.
When can I start presenting LLP documents?
Presenters cannot date or submit LLP incorporation forms to Companies House prior to 6 April 2001. Any dated or submitted earlier than this will be returned.
How much will it cost to set up an LLP?
For registration of a limited liability partnership on its incorporation under the 2000 Act.
For registration of an annual return submitted by a limited liability partnership.
For registration of notification to the registrar of companies of a change of the name of a limited liability partnership.
For the performance by the registrar of companies of his functions in relation to an application by a limited liability partnership under section 652A of the 1985 Act, as applied to limited liability partnerships, for a limited liability partnership's name to be struck off the register.
For the registration of a charge under Chapters I and II of Part XII of the 1985 Act as applied to limited liability partnerships. Per entry on a register of charges kept by the registrar of companies in respect of a limited liability partnership.
For a paper copy of a document relating to a limited liability partnership recorded and kept by the registrar of companies and delivered by post:
in respect of one document.
in respect of each further document relating to the same limited liability partnership requested on the same occasion.
For paper copies of particulars registered by way of an alphabetical index, accessed on the screen of computer terminals, of live and dissolved companies and limited liability partnerships together with their former names:
per screen of information on a computer terminal delivered
by post (first page)
for each additional page
For a certified copy of, or extract from, any record kept by the registrar of companies for the purpose of the Companies Acts and relating to a limited liability partnership.
For a certificate of incorporation of a limited liability partnership:
for the first certificate supplied on any occasion.
for each additional certificate supplied on the same occasion.
What is the difference between a member and a designated member?
Designated members are responsible for carrying out certain duties including some of those that would normally be carried out by a company director or secretary. They include such things as:
Signing the annual accounts
Filing the annual accounts and annual returns with Companies House
In the event of Insolvency proceedings, providing any statement setting out the affairs of the business i.e. assets, debts and liabilities.
Although the above duties are specifically with the responsibility of designated members, the LLP regulations will provide for any member of the LLP who "knowingly and wilfully authorises or permits a default" to be subject to a financial penalty (as set out in Section 730(5) of the Companies Act 1985, Schedule 24).
What are the disclosure requirements?
They are similar to those of a company. LLPs will be required to provide financial information equivalent to that of companies including the filing of annual accounts. Among other things, they will also be required to:
File an annual return
Notify any changes to the LLP's membership
Notify any changes to their members names & residential addresses
Notify any change to their Registered Office address
Can I convert from being a limited company to an LLP?
The LLP legislation does not allow for a 'conversion process' - in the way that a limited company can convert to PLC status under the Companies Act, for example.
Anyone with a current limited company wishing to transfer their existing company name to a new LLP should contact Stuart Morgan (details below). The process will involve a closely controlled company change of name and an LLP incorporation. Establishing contact prior to submitting the necessary forms will help ensure that this process is completed as smoothly as possible.
How can I become an LLP?
Incorporation will be by registration at Companies House, similar to the way in which one becomes a company.
What forms and guidance notes are available?
The forms for LLPs will, in the main, follow closely those for companies, except they will have an LLP prefix. Guidance booklets will be issued covering the filing requirements in respect of LLPs in England/Wales and for LLPs in Scotland. Four new guidance booklets have been introduced to help our customers. They are:
Limited Liability Partnerships Formation and Names
(applies to England, Wales and Scotland)
Limited Liability Partnerships Administration and Management
(applies to England, Wales and Scotland but with separate chapters for England/Wales and Scotland in respect of Mortgage issues)
Limited Liability Partnerships Winding Up
(applies to England & Wales only)
Limited Liability Partnerships Winding Up
(Scotland) (applies to Scotland only)
Four of the forms for LLPs are entirely new. They are:
LLP2 - A 'one-stop' incorporation document
LLP3 - A change of LLP name
LLP287a - Notice re registered office in Wales
LLP8 - A change in members' designation
These forms may be downloaded from the following link
How will an LLP be taxed?
An LLP will be taxed as a partnership. The internal structure of the LLP will be similar to that of a partnership. The members will provide working capital and will 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 Bill 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.
Members will be liable to pay Class 2 and Class 4 National Insurance contributions.
For further information on Tax and National Insurance please visit the Inland Revenue Website: www.inlandrevenue.gov.uk
Who will be liable / Who will claims be made against?
The LLP will be 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.
In the main, any third party would usually contract with the LLP rather than with the members themselves and in those circumstances it would be the LLP which is liable.
It would though, under certain circumstances, be possible to bring a claim for economic loss against an individual member who has been negligent. Any such claim would be a civil action outside the contract as the party would have contracted with the LLP. The outcome of any such claim would not be easy to forecast but recent case law suggests that the courts would, when making any decision, have regard as to whether or not the LLP member assumed personal responsibility for the advice, whether the client relied on the assumption of responsibility and whether such reliance was reasonable.
What sort of organisation can become an LLP?
Any new or existing firm of two or more persons will be able to incorporate as an LLP.
Can I incorporate an LLP in Scotland as well as England/Wales?
Will LLPs be available to charities?
No. LLPs are only available to any lawful business that is carried out with a view to a profit.
FURTHER INFORMATION IN RESPECT OF COMPANIES HOUSE INVOLVEMENT CAN BE OBTAINED FROM:
LLP Project Team
Tel: 029 2038 0744
FOR SPECIFIC ENQUIRIES RELATING TO SCOTTISH LLPs, PLEASE CONTACT:
Registrar for Scotland
37 Castle Terrace
Tel: 0131 535 5855
FURTHER INFORMATION ON LLPs AND THE BILL CAN BE OBTAINED FROM:
Company Law & Investigations Directorate 2d
Department of Trade & Industry
Bay 4100 1
Tel: 0207 215 3858