Limited Liability Partnership (LLP)
Limited Liability Partnership (LLP)
This note is a snapshot guide and should be read in conjunction with the relevant legalisation or subject to professional advice
The Limited Liability Partnership is governed by the Limited Liability Partnership Act 2000 and the Limited Liability Partnerships Regulations 2001 which incorporate some of the Companies Act 1985 into the responsibilities and rules governing Limited Liability Partnerships (LLP).
The LLP can provide the organisation and flexibility of a partnership to what is in effect a legal business entity with limited liability. The earnings of the LLP are taxed as a partnership, namely each partner/member is taxed individually on their own earnings, and therefore if a partner resides abroad and the business is transacted abroad they will not be liable to taxation in the UK. However, it is worth noting the Inland Revenue are likely to have questions of such legal entity if it contributes no revenue to the UK.
An LLP needs to submit a form to Companies House to be formally which gives the name of the LLP, the registered office, the name address and date of birth of each member and which of the persons will be designated members or whether all members will be designated. A designated member has the same rights and duties towards the LLP as any other member. These rights and duties are governed by the Limited Liability Partnership Agreement and in general law. However the law on LLP`s places extra responsibility on designated members and in particular they are responsible for:
- The appointment of an auditor.
- Signing the accounts on behalf of the members.
- Delivering the accounts to the registrar.
- Notifying the registrar of any membership changes or change to the registered office address or name of the LLP .
- Preparing, signing and delivering to the registrar and annual return.
- Acting on behalf of the LLP if it is wound up or dissolved.
Designated members are also accountable in law if they fail to carry out these responsibilities.
As with companies there are various restrictions on names and advice can be given in the proposed names prior to the formation. The company will have Limited Liability Partnership or LLP at the end of the name and must not be too similar to an existing company. In addition, if the name suggests banking approval, connection to the UK or other financial matters consent will be required before such name is used. This includes the words national; authority, board or council; institute or institutions; charter or chartered; chemist or chemistry; holding etc the Secretary of State may issue a direction for a name to be changed.
There are similar rules and regulations in respect of the delivery of accounts to Companies House and the provision of information and there are similar exemptions in relation to what size of company requires accounts to be audited.
An LLP is required to have at least two members, if its membership falls to only one member and the LLP continues to carry on business for more that 6 months then the benefits of limited liability will be lost. Every member is an agent of the LLP and the partnership will be bound by anything done by a member on its behalf unless (a) the member had no authority to act on behalf of the LLP in a particular capacity and (b) the person with whom the member dealt knew that either they had no authority to act or they did not know of his or her membership of the LLP.
Members cease to be members either by death (or dissolution in the case of a corporate member), by agreement with other members or by giving reasonable notice to other members. If a member changes, the changes of particulars must be notified to Companies House on the proper form.
The incorporation document must specify whether individual members are “designated” or whether all members should be regarded as designated member. The designated member is essentially responsible for the administration of the company.
Limited liability partnerships were originally designed to cover professionals who are forbidden from forming Limited companies through their professional bodies. However, they have been used to good effect by other firms. It is sensible to take the advice of an accountant prior to forming a limited liability company as if efficacy will depend on the type of business being operated and the way in which monies are earned.