Converting to Limited Liability Partnership (LLP)

Limited Liability Partnerships have now been with us as a business vehicle in England and Wales since 2000.

Whilst there was an initial trickle of mostly large partnerships moving to LLP status, many considered converting but could not identify a conclusive reason for doing so.

Following the advent of the credit crunch, the trickle has become more of a surge with many business owners now taking the view of “show me a good reason not to!”.

Whilst limited liability status may now appear more attractive than ever, this is not and should not be the only or main reason for converting to LLP. We have significant experience in acting on LLP incorporations and conversions, including our own, and can lead you through the process from the initial consideration of suitability for your business through to completion.

Companies, partnerships and LLPs each have different features, and choosing the right vehicle for your business, at the right time, is a critical decision. Each vehicle will have pros and cons. Benefits and disadvantages of LLPs include:

Benefits

• Limited liability for the partners (members) in relevant circumstances
• No restrictions on the number of partners
• Organisational flexibility, particularly where moving owners in and out
• Privacy of members’ arrangements
• Conversion from traditional partnership does not generally entail any alteration in tax status and is tax neutral if structured correctly
• No Employers’ National Insurance on LLP profits paid to members
• LLPs can own some assets which partnerships cannot

Disadvantages

• An LLP must file annual accounts at Companies House, although in many cases disclosure may be significantly limited
• If the LLP’s profits exceed £200,000 the remuneration of the highest paid member must also be disclosed (if full accounts are publicly available)
• Accounts must be prepared applying accounting legislation. LLPs above certain limits will require an annual audit
• Certain creditors may require personal guarantees thus diluting the advantages of the limited liability status
• Higher administration and legislative burden
• An LLP could be less attractive than a limited company when considering external investment

The above list is not exhaustive and we consider the specific circumstances of each business and its owners and advise accordingly.

Please contact Andrew Cook by email at acook@menzies.co.uk or by telephone on +44(0)20 8972 8970 to arrange a no-obligation initial consultation.