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SQE BUSINESS LAWAND PRACTICE > Limited Liabbility Partnership > Flashcards

Limited Liabbility Partnership Flashcards

1
Q

5

FORMATION

A
  1. LLPs are formed under the provisions of the LLPA and require similar formalities to limited companies for creation.
  2. Registration is required with the Registrar of Companies, and
  3. like a limited company, an LLP cannot trade until it has received a certifcate of incorporation.
  4. In the same way as a company, an LLP will have a unique name and company number to identify it on the register of companies at Companies House.
  5. Much like a general partnership, in the absence of a contractual agreement between the members, LLPs are governed by the provisions of the LLPA. However, in practice (as opposed to on the exam) the likelihood is that the members will have drafted an LLP agreement to regulate their affairs, which will override the statutory provisions.

Exam Tip
It is important to remember that an LLP is a creature of statute and will exist only on compliance with the LLPAand related legislation. Watch out for exam questions that set up facts where limited liability is desired, but therelevant documents are not filed with the Registrar ofCompanies. Because there is no statutory compliance, an LLP is not created, and the partnership will be a** general
partnership **under the Partnership Act 1890 by default. All the partners will therefore be subject to full liability.

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2
Q

4

Required Information
The incorporation documents require the following informa-tion to be submitted:

A
  1. The name of the LLP (must end in LLP or Limited Liability
    Partnership);
  2. Details of the LLP’s registered office location and address;
  3. Names and addresses of the members of the LLP (an LLP is required to have at least two designated member); and
  4. Details of people with significant control, if any.
    Note: An LLP 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 certifcate of the name change.
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3
Q

LEGAL PERSONALITY

A
  1. Like a limited company, an LLP has a separate legal personality distinct from its members
  2. This also means that unlike a general partnership, an LLP has perpetual succession; that is, the LLP as a separate legal person exists independently of any changes to the member and, therefore, does not cease to exist if a member dies or is made bankrupt, or the like.
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4
Q

2

Membership

A
  1. An LLP must have at least two members.
  2. If an LLP carries on business without having at least two members for more than six months, 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 sixmonths and while the LLP has only one member.
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5
Q

2

Admission of New Member Requires Unanimous
Consent

A
  1. The initial members will be those that signed the incorporation documents submitted to Companies House.
  2. Thereafter, unless an LLP agreement provides otherwise, new members may be added only if agreed by all the current members.
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6
Q

Registrar Must Be Notifed of Changes Within
Fourteen Days

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 is an offence.

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6
Q

4

.Designated Members

A

The general role of a designated member is to perform the **administrative and fling duties **of the LLP, including to:
*Appoint (and remove) auditors;
*Submit annual confirmation statements;
*Sign and file accounts; and
*Comply with statutory fling requirements, for example, fling registration documents and notifying Companies House of changes to the members of the LLP.
If an LLP does not designate any members, the law will treat all the members as designated members.

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7
Q

3

Members as Agents and Their Authority

A
  1. As in a general partnership, every member of an LLP is an agent of the LLP.
  2. Thus, members owe a duty of care to the LLP, may bind the LLP in contract, and can make the LLP liable in tort if they act **with actual or apparent authority. **
  3. However, similar to the rule for general partnerships, an 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.
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8
Q

2

Outgoing Members

A
  1. A person may cease to be a member of an LLP by giving** rea-sonable notice** to the other members and giving notice to the Registrar at Companies House within 14 days.
  2. When a person has ceased to be a member of an LLP, the former member is regarded (in relation to any person dealing with the LLP) as still being a member unless thatperson has** been notifed **or notice has been sent to the Registrar of Companies.
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9
Q

4

People with Signifcant Control (‘PSCs’)
LLPs, in the same way as companies, are required to keep
a register of people with signifcant control (‘PSCs’); that is,
those who own or control the LLP.

A
  1. Directly or indirectly holds rights over more than 25% of the surplus assets on a winding up;
  2. Directly or 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 or indirectly holds the right to appoint or remove the majority of those entitled to take part in man agement; or
  4. Otherwise has the right to exercise, or actually exercises, signifcant infuence or control over a trust, or the members of a firm that is not a legal person but meets any of the other specified conditions in relation to the LLP.
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10
Q

Right to Proft

A

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

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11
Q

renumeration

A

as in a general partnership, members are not entitled to remuneration for acting in the business or management of the LLP (that is, they are not entitled to be paid for working for the LLP).

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12
Q

Indemnity

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 anything done for the preservation of the business or property of the LLP (that is, if an LLP member spends or incurs a financial liability** on behalf of the LLP**, they are entitled to be reimbursed by the LLP).

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13
Q

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.

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14
Q

3

Management

A
  1. As in a general partnership, in the absence of an agreement otherwise, every member may take part in the management of the LLP and
  2. a majority of members can decide any** ‘ordinary’ matters** connected with the business of the LLP, but
  3. no change may be made in the nature of the business of the LLP without the consent of all the members.
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15
Q

2

Duty to Account

A
  1. 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 profts made by that business.
  2. Also, 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.
16
Q

Liability forActs of Members

A
  1. Generally, the members of an LLP are not liable for the wrong-ful acts or omissions of other members committed in the course of the business of the LLP or with the LLP’s authority.
  2. However, the LLP is liable to the same extent as the member
17
Q

5

OBLIGATION TO MAKE CERTAIN DOCUMENTS PUBLICLY AVAILABLE
Among other things, an LLP is required to file the following with the Regis-trar of Companies:

A
  1. The LLP’s annual accounts;
  2. An annual confirmation statement (a statement confirming or updating information on file with Companies House);
  3. Details of the appointment and removal of members;
  4. Details of any changes to the details of the members (for example, changes in a member’s name or address); and
  5. Details of any changes to the registered name or registered office of the LLP.
18
Q

3

LIABILITY FOR DEBTS

A
  1. Limited Liability
  2. Personal Liability
  3. Clawback Provisions
19
Q

3

Limited Liability

A
  1. The only liability of a member of an LLP is their** capital contribution**, and this is where LLPs and partnerships differ.
  2. On a winding up, a member of an LLP is required to contribute to the assets of the LLP only as provided for in the LLP agreement.
  3. If an LLP member has paid all of their capital contribution and the LLP agreement does not provide for any further contribution, the member would owe nothing.
20
Q

2

Personal Liability

A
  1. In the same way as directors and shareholders of a limited company, members of an LLP are subject to the rules regarding wrongful and fraudulent trading contained in theInsolvency Act 1986.
  2. These provisions make it possible forindividuals who acted wrongfully or fraudulently to be held personally liable for the debts of the company/LLP in the event of insolvency.
21
Q

2

Clawback Provisions

A
  1. if a member of an LLP hasmwithdrawn any property (whether in the form of a share of profits, salary, repayment of or payment of interest on a loan to the LLP, or any other withdrawal of property) within the period of **two years **before the LLP goes into insolvent liquidation, and
  2. it is proved that 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.
22
Q

2

TERMINATION

A
  1. Voluntary Striking Off and Dissolution
  2. Insolvency
23
Q

3

Voluntary Striking Off and Dissolution

A
  1. 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 Registrar of Companies for the LLP
    to be struck of the register and dissolved.
  2. An LLP can also be struck of by the Registrar directly if the Registrar has reason to believe it is not carrying on business
  3. Striking of 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.
24
Q

3

Limitations
There are certain circumstances in which it is not possible to strike of an LLP, including if:

A
  1. The LLP has traded or otherwise carried on business in the last three months;
  2. The LLP has changed its name in the last three months;
    or
  3. The LLP is the subject of any insolvency proceeding.
25
Q

3

Required Notices OF STRIKING OUT

A
  1. 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 of.
  2. On receipt of an application to strike of, the Registrar of Companies will publish notice of the proposed striking of in the London Gazette. This is to allow any interested parties the opportunity to object.
  3. The Registrar of Companies will strike of the LLP three months after the date of the notice and the LLP will be dissolved.
26
Q

3

Insolvency

A
  1. In the same way as a limited company, an LLP can be liquidated (voluntarily or compulsorily), put into administration, or be the subject of a voluntary arrangement (a composition with its creditors).
  2. Additionally, a fixed charge receiver or an administrative receiver (that is, a receiver or manager of the whole, or substantially the whole, of an LLP’s property) may be appointed by certain secured creditors of the LLP.
  3. An LLP may also enter into a moratorium.
27
Q

TAXATION IMPLICATIONS

A
  1. Unlike a limited company, an LLP is not a taxable person even though it is recognised in law as having a separate
    legal personality and, therefore,** it does not pay corporation tax**.
  2. Members of an LLP are taxed individually for income tax instead—like partners in a generalpartnership.
    3.Similarly, the members are liable for their share of the gains made on disposal of assets of the LLP
28
Q

Stamp Duty Exception
As a general rule, no stamp duty land tax is owed if property is transferred to the LLP within one year of the LLP’s incorpo-ration if:

A
  1. 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
  2. The proportional ownership of the property in the LLP remains the same as the proportional ownership of the
    property in the partnership.

SQE BUSINESS LAWAND PRACTICE (13 decks)

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