An LLP is a form of separate legal business entity that gives the benefits of limited liability but allows its members the flexibility of organising their internal structure as a traditional partnership. They are intended for businesses which carry on a trade or profession, and are particularly attractive to professional partnerships.

LLPs are, in law, regarded as 'bodies corporate' and are subject to aspects of company law,.but, for tax, they will generally be treated as 'partnerships'. The members provide working capital and share any profits. Members who are individuals will be liable to pay income tax under the Schedule D rules, and self-employed Class 2 and Class 4 National Insurance contributions. Members who are companies will be liable to pay corporation tax on their share of profits.

The members of an LLP have limited liability, but the LLP is liable for all its debts to the full extent of its assets. To the extent that the members have contributed to those assets, a member risks losing that amount should the creditors claim those assets.

There must be at least two members, although this can include corporate members.

An LLP has unlimited capacity which means that third parties need not be concerned about any restrictions or activities.

An LLP has complete flexibility as to the internal structure which it wishes to adopt; there are no requirements for board or general meetings or decision-making by resolution. Unlike a company, but similar to a partnership an LLP does not have a memorandum or articles of association.

LLP disclosure requirements are very similar to those of a company, including the filing of annual accounts (audited where necessary). There are also similar rules for the filing of annual returns, and notifying changes in members' details or the location of the Registered Office. However, the LLP agreement remains confidential as can members’ personal addresses following changes enacted in 2009 by the Companies Act 2006.

Every LLP must have at least two, formally appointed, Designated Members, who carry responsibilities similar to those of a Company Secretary. These designated members have statutory responsibility for certain tasks and are personally liable in the event of a default to any fine or penalty. Responsibilities include:

• Signing accounts.
• Delivering accounts to the registrar of companies.
• Appointments and removal of auditors (if required).
• Notification of membership changes (and changes to the registered office) to the registrar of companies.
• Preparing, signing and delivering the annual return.
• Applying for the LLP to be struck off the register.

LLP agreement

It is not a legal requirement to have a formal LLP members’ agreement but is strongly recommended. A comprehensive agreement governing the duties and responsibilities of the members should include provisions for:

• The management of the LLP.
• The decision-making process.
• The capital contributions required of the members, both while a going concern and (if any) on liquidation.
• The division of profits.
• Changes to the membership.
• Dispute resolution.
• Termination of the LLP.
• Provision for the amendment of the LLP agreement.

Advantages of an LLP include:

• Limited liability: reduced risk to personal wealth from creditors' claims.
• Internal flexibility: facilitates participation in management and maintenance of ethos of partnership.

Disadvantages of an LLP include:

• Lack of privacy – certain financial information must be publically available.
• Increased administrative burden.

At Menzies we have significant experience in acting for LLPs and advising on LLP incorporations and conversions.
 
For further information, please contact:

Andrew Cook
Partner
T: +44(0)20 8972 8970
E: acook@menzies.co.uk