Chapter 3: Limited Liability Partnerships Flashcards

You may prefer our related Brainscape-certified flashcards:
1
Q

What is a Limited Liability Partnership?

A

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).

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What are LLPs governed by?

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What are LLPs formed?

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What information needs to be submitted in the incorporation documents?

A
  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
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

How may an LLP change its name?

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

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

A

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.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What does an LLP having separate legal personality mean?

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

How many members must an LLP have?

A

at least 2

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

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

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

How can a new member be admitted?

A

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.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What is the general role of a designated member?

A

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
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

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

A

The law will treat all the members as designated members

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

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

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

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

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

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

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

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

A

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.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Who are people with significant control?

A

Those who own or control the LLP

18
Q

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

A
  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
19
Q

What right to profit do members of an LLP have?

A

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.

20
Q

Are members entitled to remuneration?

A

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

21
Q

What right to be indemnified do members have?

A

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

22
Q

What rights do members have re books and records?

A

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.

23
Q

What right to management do members have?

A

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

24
Q

What is the members’ duty to account?

A

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.

25
Q

Are members liable for acts of other members?

A

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.

26
Q

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

A
  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
27
Q

What is an annual confirmation statement?

A

A statement confirming or updating information on file with Companies House

28
Q

How is a members’ liability limited?

A

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.

29
Q

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

A

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.

30
Q

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

A

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

31
Q

What are clawback provisions?

A

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.

32
Q

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

A

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.

33
Q

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

A

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.

34
Q

What is striking off?

A

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

35
Q

When is it not possible to strike off an LLP?

A

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
36
Q

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

A

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

37
Q

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

A

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

38
Q

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

A
  1. Voluntary liquidation
  2. Compulsory liquidation
  3. Administration
  4. Voluntary arrangement - composition with its creditors .
  5. Receivership
  6. Moratorium
39
Q

How is an LLP taxed?

A

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.

40
Q

How are members treated for IHT purposes?

A

The same as partners in a general partnership

41
Q

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

A

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.