Business Law and Practice - LLPs Flashcards
Characteristics
Separate legal entity and, therefore, has perpetual succession
Requires the same components of a general partnership (i.e. two or more persons carrying on a business with the view to make a profit) but also requires incorporation
Should have a partnership agreement but not required
Once Registrar of Companies House is satisfied with incorporation documents LLP comes into existence
Hybrid between limited company and general partnership
Governed by provisions of Limited Liability Partnerships Act 2000 but most will draft their own LLP agreement which overrides the statutory provisions
Members
Must be at least two:
- If there are less than two members for more than 6 months person who carried on business after 6 months is personally liable with LLP for debts
- At least two must be designated members
Free to leave and new members may be added - adding members requires unanimous consent
Registrar must be notified of changes to membership or in the identity of the designated members within 14 days
Members as Agent
Each member is agent of LLP and can bind LLP (as in general partnership)
LLP not bound if member had no authority to act and the person they are dealing with knew they did not have authority or did not know they were a member of the LLP
Rights of Members
Share of profits (equal by default)
Indemnification if they pay expenses on behalf of LLP
Can inspect books and records whenever they see fit
Management
Duties of Members
Refrain from competing with LLP
Refrain from profiting off LLP’s name or property
If they violate their duties they must account to the LLP for their profit
Liability of Members
Members cannot be pursued for debts
Not liable for wrongful acts or omissions of fellow members
Only liable for amount of capital contribution - therefore, can only lose the amount of money they have put into LLP
Subject to rules for wrongful and fradulent trading
Termination of LLP
Continues despite death of a member (unlike general partnerships)
Must be removed from register at Companies House
Members can apply to be struck off - majority not unanimous vote, requires notices to other members, creditors, employees and trustee of any pension fund of application to strike off
Registrar can also strike off an LLP directly if it has reason to believe the LLP is not carrying on business
Dissolved three months after Registrar publishes notice in London Gazette
Cannot apply to strike off an LLP if:
- LLP has traded or otherwise carried on business in last 3 months
- LLP had changed its name in last 3 months
- LLP subject of insolvency proceedings
Taxation
LLP not taxable, despite being a separate legal entity, and so it does not pay corporation tax
Members charged tax on their share of profits
Members of LLP treated the same as partners in general partnership for inheritance tax purposes
Stamp duty exception:
- No stamp duty land tax owed if property transferred to LLP within 1 year of incorporation if it is transferred by a person (1) who is/was a partner in a partnership comprised of the members of the LLP or (2) who holds the property as a bare trustee for a partner in such a partnership AND the proportional ownership of the property in the LLP remains the **same **as that of the property in the partnership
Persons with Significant Control (PSCs)
- Rights over more than 25% of surplus assets on winding up
- More than 25% of rights to vote on matters that are to be decided upon by a vote
- Right to appoint or remove the majority of those entitled to take part in management
- Right to exercise or actually exercises significant control
Insolvency
LLP can be liquidated, put into administration or be the subject of a voluntary arrangement
Additionally, a fixed charge receiver or administrative receiver can be appointed by certain secured creditors
LLP may also enter moratorium
