Limited Liability Partnerships.
When most people want to start a business they will either trade through their own name (a sole trader), with others (a partnership) or through a company. There is however another way to trade or own assets which is not so common but should really be looked at.
Limited Liability Partnerships (LLP) are a reasonably new form of legal structure through which to either trade as a business or hold property or other assets. As the name suggests they are a cross between partnership and a limited liability company.
Before we explore what a LLP is let us look at the main differences between a partnership and company:
Company
- Shareholders of a company have limited liability to third parties. A company is its own legal entity which means it can own property, enter into contracts sue and be sued. The liability of its shareholders is limited to the amount of money they paid for their shares. Unless a shareholder personally guarantees the obligations of a company they will not need to pay any more money than this to any third party creditors.
- A company must be run in accordance with the Companies Act 200 and any other statutory provisions. This means filing forms, holding meetings and preparing accounts.
- All accounting and other legal information relating to the company and its ownership will be held at Companies House. Companies House is a public registrar and all information filed at Companies House is open to inspection by all member of the public.
Partnership
- Each member of the partnership has joint and several unlimited liability to third parties dealing with the partnership. That means if the partnership owes a debt of £10,000 then each partner is individually responsible for that debt if the debtor should decide to sue. Of course if a single partner was sued then that partner could seek to recover that money from the other partners.
- Partnerships have no specific formal business structure as to how they need to conduct their business. The partners can determine how the business should be run as they wish.
- All partnership information and accounts are private.
So what is a Limited Liability Partnership ?
A LLP is a hybrid of a company and a partnership. It provides the flexibility of a partnership when doing business (ie the members can organise their internal business how they wish) whilst creating an entity which has its own legal personality and giving its members limited liability to third party creditors just like shareholders have in a company.
LLP can be incorporated in either England, Scotland, Wales or Northern Ireland.
In return for giving its members limited liability more details of the partnership need to be made public. Accounting and other legal information will need to be provided to Companies House which will then be open to review by the public.
Information which need s to be filed at Companies House include as follows:
- Every year details of the members and registered address of the LLP (like an annual return)
- Changes to any Members
Changes to Members names and/or address - Changes to the registered office.
Members and their duties to the LLP
Partners in a LLP are called “members” rather than partners or shareholders. This distinguishes them from other business structures.
Members can be separated into two types. “Designated Members” and normal Members. A designated member is akin to a director in a company or a partner with a management or equity position in a partnership. They will need to carry out the duties normally carried out by a director or a company secretary in a company like compiling and signing the various forms containing the information above.
Also within the internal business structure of the LLP Designated Members can also hold control over key decisions made by the business (for example expenditure over £10,000 cannot be incurred by the LLP unless any two Designated Members approve it).
As with any business it is essential that an agreement is put in place between the members as to how the LLP should be run, how disputes are to be settled and what happens if a member wants to leave or other members want to expel that Member. In the absence of an agreement you will need to rely on the statutory provisions which basically say that all profits and losses are to be shared equally and not much else.
Limited Liability Partnerships and Tax
A full discussion of the tax implications for LLP’s when trading and holding assets is beyond the scope of this article save to say that there really are major tax benefits to trade by an LLP compared to a company (especially for holding property) . You should seek specialist advice on these tax issues before you commence trading.
