6: Starting a Limited Liability Partnership

Question 1

In what year were LLPs introduced?

Answer 1

2001

Question 2

What are three reasons why LLPs were introduced?

Answer 2

1. increases in claims for professional negligence
2. growth in size of partnerships
3. increasing specialisation among partnerships

Question 3

Why must an LLP register with the Registrar of Companies at Companies House?

Answer 3

Because it is a separate legal entity.

Question 4

What should all partners enter into before entering into an LLP?

Answer 4

An LLP agreement.

Question 5

Which Act is relevant to LLPs?

Answer 5

Limited Liability Partnerships Act 2000 (LLPA 2000)

Question 6

What are the requirements for incorporating an LLP according to LLPA 2000?

Answer 6

s2(1) states that in order for an LLP to be incorporated:

a) two or more people who are carrying on a lawful business with a view to profit must have agreed to an incorporation document.

b) the incorporation document must have been delivered to the Registrar of Companies at Companies House, with…

c) a statement that the requirements in a) have been complied with.

+ a fee

Question 7

How is a business defined in LLPA 2000?

Answer 7

In s18 LLPA 2000, a business is defined as including every trade, profession and occupation (the same definition as in ordinary partnerships).

Question 8

Can a not-for-profit organisation like a charity register as an LLP?

Answer 8

No, the partnership business must be carried on with a view to profit.

Question 9

What is the form used for incorporating an LLP?

Answer 9

Form LL IN01. Do not confuse this with form IN01 which is used to incorporate a company.

Question 10

What does the LLP form contain information about?

Answer 10

Form LL IN01

1. LLP name
2. LLP’s registered office
3. LLP’s designated members
4. LLP’s partners (or members), which will appear on Companies House’s public record
5. LLP’s persons of significant control (PSCs), to protect third parties and prevent tax avoidance
6. Statement of compliance from s2(1)(c)

Question 11

Who needs to sign the statement of compliance for an LLP, referred to in s2(1)(c) LLPA 2000?

Answer 11

It needs to be signed by a lawyer who is involved in forming the LLP or a partner in the LLP.

Question 12

Who can sign the incorporation document for an LLP?

Answer 12

A lawyer involved in forming the LLP instead of by the founding partners.

Question 13

What are the ways in which the incorporation document can be filed?

Answer 13

Electronically (using specialist software, only used by company forming agencies)
Hard copy by hand by Companies House
Hard copy by post to Companies House

Question 14

What does the Registrar of Companies issue when they are satisfied all requirements have been met for incorporation?

Answer 14

A certificate of incorporation. It will include a date for when the LLP has validly been formed and a unique registration number.

Question 15

What are the requirements for an LLP name?

Answer 15

It must include one of the following at the end of the name:

Limited Liability Partnership
llp
LLP

Question 16

What are the requirements for a Welsh LLP name?

Answer 16

It must include one of the following at the end of the name:

partneriaeth atebolrwydd cyfyngedig
pac
PAC

Question 17

What are the limitations on LLP names?

Answer 17

1. Cannot have a name that has already been registered as an LLP (check Companies House index of name)
2. Cannot infringe a registered trade mark (trade marks register search and internet search)
3. Cannot be offensive or criminal (s53 Companies Act 2006)
4. Cannot be in connection with the government or ‘sensitive’ (ss54 and 55 Companies Act)

Question 18

Which piece of legislation allows LLPs to be ruled by Companies Act 2006 on name rules?

Answer 18

Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009.

Question 19

How many names can an LLP have?

Answer 19

It can choose a business name separate from its own name, but the information must be disclosed according to ss1200-1206 Companies Act 2006.

Question 20

What are the rules on disclosing partners’ names and other information, included in the Company, Limited Liability Partnership and Business (Names and Trading Disclosures) Regulations 2015?

Answer 20

(1) The registered name of the LLP must be displayed at its registered office.
(2) On all business documents and websites, the LLP must disclose its registered name, its registered number and the address of its registered office.
(3) If the LLP names any partner on its business documents (other than in the text of the document or as a signatory) or on its website, it must then give the names of all its partners.

Question 21

How can an LLP register for tax?

Answer 21

It is automatically registered as a partnership with HMRC when it is incorporated at Companies House.

Question 22

Who is responsible for filing the LLP’s annual tax return?

Answer 22

The designated members.

Question 23

Do the partners need to do their own self-assessment tax return in an LLP?

Answer 23

Yes, they need to register for self-assessment and then report their earnings from the LLP in their individual tax returns.

Question 24

What would the LLP have to register for if it has employees?

Answer 24

PAYE

Question 25

What factors are taken into consideration when deciding what an LLP needs to file for tax purposes?

Answer 25

1. Annual turnover (receipts from its sales)
2. Balance sheet total (assets minus liabilities)
3. Number of employees

Question 26

What must the smallest LLPs file?

Answer 26

An abridged balance sheet, with prescribed minimum notes.

Question 27

According s382 Companies Act 2006, the LLP must meet two out of three of which conditions in order for its accounts to be audited each year?

Answer 27

1. annual turnover more than £10.2 million
2. balance sheet total more than £5.1 million
3. more than 50 employees

Question 28

Where can you find the rules governing the contents of an LLP’s accounts?

Answer 28

Part 15 and 16 Companies Act 2006.

Question 29

If an LLP is required to have its accounts audited, who must be appointed?

Answer 29

The LLP must appoint an accountant as auditor.

Question 30

In which circumstances would an LLP be dissolved?

Answer 30

An LLP continues to exist until it is dissolved. There are no duration rules, unlike ordinary partnerships.

Question 31

When would a partner lose the benefit of limited liability?

Answer 31

s4A LLPA 2000 states that if an LLP has only one member for more than 6 months, the sole member automatically becomes liable for the debts of the LLP.

Question 32

If there are only two partners, who would be the designated member?

Answer 32

According to s8(2) LLPA 2000, every member is a designated member if otherwise there would be no designated member or only one.

Question 33

Why may lenders ask for personal guarantees on a loan to an LLP?

Answer 33

As individual partners only have limited liability, once they have paid their capital contributions to the LLP, the lender has no further claim over them.

Question 34

Is an LLP agreement private or public at Companies House?

Answer 34

It is a private document.

Question 35

Why would it be a good idea to have the LLP, as a separate legal person, as a party to the LLP agreement?

Answer 35

To allow partners to bring proceedings against the LLP to enforce the terms of the agreement and allow the LLP to enforce the agreement against partners who default.

Question 36

Where is it stated that the LLP will be governed by the usual terms (e.g. equal shares, indemnities, etc) unless agreed in express terms in the LLP agreement?

Answer 36

Limited Liability Partnerships Regulations 2001 (LLPR 2001) Reg 7.

Question 37

Does a commencement date need to be included in an LLP agreement?

Answer 37

It is helpful, but the certificate of incorporation will have this exact date.

Question 38

What should be agreed about losses in an LLP agreement?

Answer 38

The proportions in which any losses are shared. LLP partners aren’t usually required to contribute to its losses due to the limited liability.

Question 39

What should be covered in the LLP agreement?

Answer 39

• Ownership and terms of assets
• Allocation of designated partners (and liability if they fail to do their duties)
• Rules around retirement of partners - s4(3) states they need to give reasonable notice to others, what is reasonable?
• Retiring partner’s share, whether to purchase
• Duration if partners reduce to one
• Liability in tort (should LLP indemnify partner who is sued in tort?)

Question 40

Can a client sue a partner who made them incur losses, as well as the LLP?

Answer 40

Yes, the LLP will be liable due to the contract it has with the client, but if it can’t cover the claim, then the client can sue the partner, who will be liable in the tort of negligence.