3. Limited Liability Partnerships

Question 1

What four things must be included in the incorporation documents for an LLP that are submitted to Registrar of Companies?

Answer 1

1. Name of the LLP
2. Registered office address
3. Names/addresses of partners
4. Details of people with significant control

Question 2

If an LLP is not properly set up, what is the result?

Answer 2

A general partnership forms and the partners have unlimited liability

Question 3

What is the minimum number of members?

Answer 3

Two

Question 4

For how long can an LLP operate with one member, and what happens after that period?

Answer 4

Six months, after which the single member is liable for debts accrued after the six month period

Question 5

Unless the agreement provides otherwise, what is required to add a new member?

Answer 5

Consent of all members

Question 6

What is the role of the designated member?

Answer 6

Perform administrative and filing duties of the LLP, including:

• Appoint and remove auditors
• Submit annual statements
• Sign and file accounts
• Comply with statutory filing requirements

Question 7

What is the position if the LLP does not designate a member?

Answer 7

All members are treated as designated members

Question 8

Within what time period of a change to the designated members must the Registrar be notified?

Answer 8

14 days

Question 9

What is the position regarding agency and authority in an LLP?

Answer 9

The same as a general partnership.

Every member is an agent of the LLP.

LLP not bound by anything done if a member has no authority and the person with whom they are dealing knows they have no authority or doesn’t think they do

Question 10

Until when is a former member deemed to still be a member for the purposes of dealings with third parties?

Answer 10

Until notice is given to the person or sent to the Registrar

Question 11

What four possible ways could someone’s stake in an LLP make them a person with significant control?

Answer 11

1. Directly or indirectly holding more than 25% of the surplus assets upon winding up
2. Directly or indirectly holding more than 25% of the voting rights
3. Directly or indirectly holding the right to appoint or remove the majority of management
4. Otherwise having the right to exercise or actually exercising significant control or influence

Question 12

How are profits shared in the absence of agreement?

Answer 12

Equally

Question 13

How is management and voting dealt with?

Answer 13

Roughly the same as a general partnership, e.g. equal right to manage, ordinary matters require simple majority; change to nature of business requires unanimity

Question 14

What is the duty to account in an LLP?

Answer 14

Same as general partnership; must account for benefits derived from partnership without consent, and competing profits

Question 15

Are members in an LLP liable for wrongful acts or omissions of other members in the course of business or with the LLP’s authority?

Answer 15

No, but the LLP is liable with the offending member

Question 16

In order to benefit from limited liability, what five things is an LLP obligated to make available to the public?

Answer 16

1. Annual accounts
2. Annual confirmation statement

Details of:
3. Appointment/removal of members
4. Changes to members’ details
5. Changes to LLP name or address

Question 17

What is the extent of the liability for a member of an LLP?

Answer 17

Limited to their capital contribution

Question 18

What proportion of the members may apply to the Registrar for an LLP to be struck off and dissolved?

Answer 18

Majority

Question 19

In what three circumstances is it not permitted to strike off an LLP?

Answer 19

1. LLP has traded or carried on business in the last three months
2. LLP changed name in last three months
3. LLP is the subject of any insolvency proceeding

Question 20

What four parties must the members making the application to strike off notify?

Answer 20

1. Other members
2. Creditors of the LLP
3. Employees
4. Trustee of any pension fund

Question 21

What time period after the notice to strike off will the Registrar strike off the LLP, dissolving it?

Answer 21

Three months

Question 22

How is an LLP taxed?

Answer 22

Members are taxed individually for their share of profits/gains

Question 23

What are the two requirements for property transferred to an LLP within one year of incorporation to be exempt from stamp duty land tax?

Answer 23

1. Property must be transferred from a person who is/was a partner in a partnership comprised of members of the LLP, or holds property as a bare trustee for such a partner and
2. Proportional share of the property in the LLP remains the same as the proportional ownership in the property in that partnership

Question 24

What form is used to incorporate a LLP?

Answer 24

LLIN01

Question 25

What are the default provisions of the LLP Regulations 2001?

Answer 25

• no entitlement to renumeration
• unanimous consent to introduce a new member or assign membership.
• equal share of capital profits
• all entitled to take part in the firm’s management.
• all members must agree to change partnership business.
• members agree to indemnify each other.

Question 26

What are the four key responsibilities of ‘designated’ members?

Answer 26

1) appoint an auditor if necessary
2) sign off the LLP’s accounts and file them with the Registrar.
3) Ensure a confirmation statement for an LLP is filed annually with the Registrar.
4) Ensure that the LLP complies with all statutory filings.

Question 27

What same legal recourse, generally available to companies’ shareholders, also extends to members of an LLP?

Answer 27

Unfair prejudice claim

Question 28

When will an individual partner be treated as a ‘salaried employee’ for tax purposes, and what is the underlying reasoning for this?

Answer 28

avoid tax loophole that allows partners to claim higher National insurance and tax benefits.

Conditions:
* A: it is reasonable to expect that at least 80% of a member’s share of profit is ‘disguised salary’;
* the individual does **not have ‘significant influence’ **over the affairs of the LLP; and
* the individual’s capital contribution is less than 25% of the amount of the disguised salary it is reasonable to expect the member to receive during the relevant tax year.

Question 29

What effect dp the clawback provision applicable to LLPs have on partner’s liability for debts?

Answer 29

if member has withdrawn any property from LLP in last 2 years before insolvency, and knew or had to reasonable grounds to believe that LLP was or likely to become insolvent, then court can order for assets to contribute to LLP and be used to pay out any debts.