Chapter 3: Limited Liability Partnerships

Question 1

What is a Limited Liability Partnership?

Answer 1

Essentially a hybrid between a limited company + a general partnership.

Gives members the benefit of limited liability whilst still being able to constitute their business as a partnership with its associated flexibility (when compared with a limited company).

Question 2

What are LLPs governed by?

Answer 2

The Limited Liability Partnerships Act 2000 (LLPA), and associated legislation

Question 3

What are LLPs formed?

Answer 3

Registration is required with the Registrar of Companies - cannot trade until it has received a certificate of incorporation.

LLP will have a unique name + company number to identify it on the register of companies at Companies House

Question 4

What information needs to be submitted in the incorporation documents?

Answer 4

1. The name of the LLP (must end in LLP or Limited Liability Partnership)
2. Details of the LLP’s registered office location + address
3. Names and address of the members of the LLP (and must have at least 2 designated members), and
4. Details of people with significant control, if any

Question 5

How may an LLP change its name?

Answer 5

May change its name at any time by delivering a notice of the change to the Registrar of Companies.

The change is effective when the Registrar issues a certificate of the name change

Question 6

What happens if there is no statutory compliance re formation of an LLP?

Answer 6

An LLP will not have been created.
The partnership will be a general partnership under the Partnership Act 1890 by default.
- Subject to full liability.

Question 7

What does an LLP having separate legal personality mean?

Answer 7

It owns property in its own right.

Contracts are entered into in the name of the LLP.

The LLP can sue and be sued in its own name.

Means that unlike a general partnership, an LLP has perpetual succession.
- The LLP as a separate legal person exists independently of any changes to the member and, therefore, doesn’t cease to exist if a member dies or is made bankrupt etc

Question 8

How many members must an LLP have?

Answer 8

at least 2

Question 9

What happens if an LLP carries on business without having at least 2 members for more than 6 months?

Answer 9

The person who carried on the business will be jointly and severally liable with the LLP for the debts of the LLP incurred after the initial 6 months + while the LLP has only 1 member

Question 10

How can a new member be admitted?

Answer 10

The initial members will be those that signed the incorporation documents submitted to Companies House.

Thereafter, unless an LLP agreement provides otherwise, new members may be added only if agreed by all current members.

Question 11

What is the general role of a designated member?

Answer 11

To perform the administrative and filing duties of the LLP, including to:

1. Appoint (and remove) auditors,
2. Submit annual confirmation statements,
3. Sign and file accounts, and
4. Comply with statutory filing requirements, e.g., filing registration documents and notifying Companies House of changes to the members of the LLP

Question 12

What happens if an LLP doesn’t designate any members?

Answer 12

The law will treat all the members as designated members

Question 13

What must be done if there are changes in membership or in the identity of the designated members?

Answer 13

The LLP must notify the Registrar of Companies of changes in membership or in the identity of the designated members within 14 days of the change.

Failure to comply with these requirements = criminal offence

Question 14

When is an LLP not bound by something done by a member?

Answer 14

LLP is not bound by anything done by a member if the member has no authority to act and the person they are dealing with knows that the member has no authority, or does not know or believe that they are a member of the LLP

Question 15

How may a person cease to be a member of an LLP?

Answer 15

By giving reasonable notice to the other members and giving notice to the Registrar at Companies House within 14 days.

Question 16

What happens when a person has ceased to be a member of an LLP?

Answer 16

The former member is regarded (in relation to any person dealing with the LLP) as still being a member unless that person has been notified or notice has been sent to the Registrar of Companies.

Question 17

Who are people with significant control?

Answer 17

Those who own or control the LLP

Question 18

What conditions need to be met to be a PSC of the LLP?

Answer 18

1. Directly/indirectly holds rights over more than 25% of the surplus assets on a winding up,
2. Directly/indirectly holds more than 25% of the rights to vote on those matters which are to be decided upon by a vote of the members of the LLP
3. Directly/indirectly holds the right to appoint or remove the majority of those entitled to take part in management, or
4. Otherwise has the right to exercise, or actually exercises, significant influence or control over a trust, or the member of a firm that is not a legal person but meets any of the other specified conditions in relation to the LLP

Question 19

What right to profit do members of an LLP have?

Answer 19

If there is no provision to the contrary in the LLP agreement, members are entitled to share equally in the capital and profits of the LLP.

Question 20

Are members entitled to remuneration?

Answer 20

As in a general partnership, members aren’t entitled to remuneration for acting in the business or management of the LLP

Question 21

What right to be indemnified do members have?

Answer 21

As in a general partnership, the LLP must indemnify each member in respect of payments made and personal liabilities incurred by the member in the conduct of the business of the LLP, or any thing done for the preservation of the business or property of the LLP

Question 22

What rights do members have re books and records?

Answer 22

As in a general partnership, members are entitled to have access to and inspect the books and records of the LLP at any time they see fit.

Question 23

What right to management do members have?

Answer 23

As in a general partnership, in the absence of an agreement otherwise, every member may take part in the management of teh LLP + a majority of members can decide any ‘ordinary’ matters connected with the business of the LLP.

No changes may be made in the nature of the business of the LLP without the consent of all the members

Question 24

What is the members’ duty to account?

Answer 24

As in a general partnership, if a member carries on any business in competition with the LLP without the consent of the LLP, they must account for all profits made by that business.

Additionally, every member must account to the LLP for any personal benefit they derived without the consent of the LLP from any transaction concerning the LLP, or from their use of the property of the LLP, name, or business connection.

Question 25

Are members liable for acts of other members?

Answer 25

Generally, the members of an LLP aren’t liable for the wrongful acts or omissions of other members committed in the course of the business of the LLP or with the LLP’s authority.

However, the LLP is liable to the same extent as the member.

Question 26

What is an LLP required to file at the Registrar of Companies?

Answer 26

1. LLP’s annual accounts,
2. Annual confirmation statement,
3. Details of the appointment and removal of members,
4. Details of any changes to the details of the members, e.g., changes in a member’s name/address, and
5. Details of any changes to the registered name or registered office of the LLP

Question 27

What is an annual confirmation statement?

Answer 27

A statement confirming or updating information on file with Companies House

Question 28

How is a members’ liability limited?

Answer 28

Members aren’t liable for the debts owed to the LLP’s creditors.

Only liability of a member of an LLP is their capital contribution.

Question 29

What is required of a member of an LLP on a winding up?

Answer 29

A member of an LLP is required to contribute to the assets of the LLP only as provided for in the LLP agreement.

If an LLP member has paid all of their capital contribution and the LLP agreement doesn’t provide for any further contribution, the member would owe nothing.

Question 30

How do the rules regarding wrongful and fraudulent trading contained in the Insolvency Act 1986 affect a member’s limited liability?

Answer 30

These provisions make it possible for individuals who acted wrongfully or fraudulently to be held personally liable for the debts of the company/LLP in the event of insolvency

Question 31

What are clawback provisions?

Answer 31

If a member of an LLP has:
I. Withdrawn any property (share of profit/salary/repayment of loan etc within the period of 2 years before the LLP goes into insolvent liquidation, and

II. It is proved at the time of the withdrawal they knew or had reasonable ground for believing that the LLP was unable to pay its debts, or would become unable to pay its debts as a result of the withdrawal, the court may order the member to contribute to the assets of the LLP.

Question 32

How can members of the LLP apply to have the LLP struck off the register + dissolved?

Answer 32

IF the members of an LLP decide that it is no longer needed, or if the LLP is dormant and nontrading, a majority of members may apply to the Register of Companies for the LLP to be struck off the register + dissolved.

Question 33

When can an LLP be struck off by the Registrar directly?

Answer 33

If the Registrar has reason to believe it is not carrying on business, e.g., because filing requirements have not been complied with or documents sent to the registered office are returned.

Question 34

What is striking off?

Answer 34

It is different from formal insolvency proceedings, which can bring the affairs of an LLP to an end in a formal and organised way for creditors

Question 35

When is it not possible to strike off an LLP?

Answer 35

If:

1. The LLP has traded or otherwise carried on business in the last 3 months,
2. The LLP has changed its name in the last 3 months,
3. The LLP is subject of any insolvency proceedings

Question 36

What notices are required if the LLP is being struck off?

Answer 36

The members making the application are required to notify:
- the other members,
- the creditors of the LLP,
- any employees, and
- the trustee of any pension fund of the application to strike off

Question 37

What will the Registrar of Companies do on receipt of an application to strike off?

Answer 37

The Registrar of Companies will publish notice of the proposed striking off in the London Gazette.

This is to allow any interested parties the opportunity to object.

The Registrar of Companies will strike off the LLP 3 months after the date of the notice and the LLP will be dissolved

Question 38

What are an LLP’s options in the face of insolvency?

Answer 38

1. Voluntary liquidation
2. Compulsory liquidation
3. Administration
4. Voluntary arrangement - composition with its creditors .
5. Receivership
6. Moratorium

Question 39

How is an LLP taxed?

Answer 39

The LLP is not a taxable person even though it is recognised in law as having a separate legal personality.

It does not pay corporation tax.

Instead, members of an LLP are taxed individually for income tax.

Members are liable for their share of the gains made on the disposal of assets of the LLP.

Question 40

How are members treated for IHT purposes?

Answer 40

The same as partners in a general partnership

Question 41

What is the general rule re stamp duty on LLP property?

Answer 41

As a general rule, no stamp duty land tax is owed if property is transferred to the LLP within 1 year of the LLP’s incorporation if:

i. 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

ii. the proportional ownership of the property in the LLP remains the same as the proportional ownership of the property in the partnership.