Limited Liability Partnerships Flashcards
What is an LLP?
A hybrid of company and partnership.
How is an LLP a hybrid?
1) Separate legal entity
2) Partners have limited liability
3) Partners taxed as individuals
Why are LLPs good for management?
They allow high level of management by members whilst giving them benefit of limited liability
What industries are LLP’s most common in?
Solicitors, surveyors, accountants, but also Joint Ventures and Property Development
What legal framework governs LLP primarily?
Company law
How is an LLP formed? Minimum number requirement?
- Two or more people
- Registration at Companies House
What is sent to Companies House to incorporate LLP?
- Form LL IN01
What must LLP’s notify Companies House of from incorporation?
- Change of name
- Change of registered office / e-mail
- Changes in membership
- Creation of a charge
- Annual confirmation statement; and
- Accounts
- Persons with Significant Control
What is the rule on members for LLPs?
- Must have two formally appointed members at all times
- At least two members must be ‘designated members’
Can corporate bodies be members of an LLP?
Yes
When does a member cease to be a member?
- On death
- Agreement with other members of LLP
- Giving notice to other members of LLP
- Dissolution (if corporate)
What are designated members obligations?
- Signing accounts on behalf of members
- Making filings at Companies House
- Acting on behalf of LLP if wound up
What is the standard LLP Agreement?
There is none. So in the absence of an agreement, there is literally absolute flexibility on the management of an LLP.
Does PA 1890 not apply to LLPs?
No
What happens in the absence of an LLP Agreement?
Management is flexible, but there are 2001 Regulations that contain 11 default provisions
What are the default provisions in the absence of an agreement? What is the only difference to PA 1890 provisions?
1) The only difference is that every member must take part in management. The rest are:
2) Members share equally capital and profits
3) LLP indemnify members for payments made and personal liability incurred in the conduct of business of the LLP
4) No member entitled to remuneration for management
5) No one can become / assign member without consent of all existing members
6) Ordinary decision making by majority. Unless nature of business change
7) Records available for inspection by members at registered office
8) Each member must give true account for things affecting LLP
9) If a member, without consent, carries on business of same nature, must account for and pay over to LLP all profits
10) Every member has a duty to account for benefits derived from transactions with LLP and its business of property
11) No implied power of expulsion of member by majority unless expressly provided for such a power in Members’ Agreement
Is LLP taxed?
No, the partners are
How are LLP members taxed?
Same as partnership
Why is an LLP more beneficial in terms of tax than a company?
Because a company pays corporation tax, and then the shareholders / individuals are also taxed (income tax)
How are assets of an LLP treated for tax purposes?
They are treated as being held by the members as partners for capital gains purposes
If an asset is disposed of by an LLP, how will HMRC treat it?
It will be regarded as a disposal by the members of the LLP
What is the ‘clawback’ rule for members?
Money taken out by LLP members up to two years before commencement can be clawed back into the pool of assets available to repay LLP creditors
Does an LLP pay stamp duty?
They receive relief, actually, subject to strict tax avoidance conditions
What are 5 corporate characteristics of an LLP?
1) Separate legal personality
2) Limited liability for members
3) LLPs have to file accounts
4) LLPs capable of creating floating charge over assets, unlike partnership
5) Provisions of company / corporate law apply
What are 6 partnership characteristics of an LLP?
1) No share capital or capital maintenance requirements
2) No distinctions between members and management board (unlike in a company)
3) Members can agree how to share profits, management duties, decisions, etc
4) Member’s Agreement is like a Private Partnership Agreement
5) LLPs tax transparent in the same way as a partnership
6) Clawback rule
What is a statutory procedure benefit of an LLP over a company?
Less statutory procedure to follow when partners are making decisions in day to day management
