Limited Liability Partnerships Flashcards
what is a limited liability partnership?
a business structure that combines the flexibility of a general partnership with the benefit of limited liability for its members
this means partners are protected from personal liability for the debts and obligations of the business
legal requirements of an LLP
- members
- incorporation
- name
legal requirements - members
LLP must have at least two members on incorporation
also a requirement to have two designated members - responsible for filing documents at Companies House
(if the LLP only has two members, then these two members will have to be designated members to fulfil the requirement for two designated members)
if at any time the number of members reduces to one, and this carries on for more than six months, that person is jointly and severally liable for any of the LLP’s debts incurred during the period from the six-month point onwards
legal requirements - incorporation
LLP is started by filing form LL IN01 at Companies House
no requirement for the LLP to file any LLP agreement
Companies House will then issue a certificate of registration
legal requirements - name
name must end in LLP or limited liability partnership
(unless the partnership name consist wholly of the names of all the partners)
LLP must have its name on the outside of its place of business and its stationery must state its name, place of registration and registration number
an LLP can change its name at any time, with the consent of all of the members
(or the procedure for change of name can be set out in the partnership agreement)
registered office and email address
must have a registered office, which is its address for service of official documents
must also have an appropriate email address - to which emails sent by the registrar would be expected to come to the attention of a person acting on behalf of the limited liability partnership
designated members
have duties and responsibilities as members of the LLP
members are responsible for various administrative and legal matters, including:
- signing and filing the annual accounts with the Registrar
- appointing, removing, and remunerating the auditors
- filing the annual confirmation statement
- sending notices to the Registrar of Companies
- winding up the LLP
designated members must carry out all their functions consistently with the core fiduciary obligation every member owed to the LLP
designated members also owe a duty of reasonable care and skill to the LLP
effect of limited liability
if an LLP is insolvent, the company liquidation regime under the Insolvency Act 1986 applies to both the LLP and its members
- members may be liable for misfeasance, fraudulent trading or wrongful trading and may be required to contribute to the assets of the insolvent LLP
- a member of an LLP could be disqualified from being a director or a member of an LLP
duties and responsibilities of members
governed by agreement between members or between the LLP and its members
if there is any matter which the parties have not agreed, the LLP Regulations 2001 will apply
members also owe fiduciary duties to the LLP, as its agents. They include:
- duty of good faith
- a duty to account for any money received on behalf of the LLP
- a duty to the other members to render true accounts and full information on matters concerning the LLP
authority of members
members of an LLP are agents of the LLP
limitations can be placed on a partners actual authority in the partnership agreement or orally
- however, LLPs may still be liable to a third party, even if a partner has acted without actual authority, because of the principle of apparent authority
owning property and granting charges
LLPs can own property and the LLP itself be the legal owner
can also issue debentures and grant both fixed and floating charges
must keep keep a register of charges, along with a copy of every charge requiring registration, at its registered office
register should include all charges affecting the LLP’s property and floating charges
any creditor or member of the LLP must be allowed to inspect the register
LLPs are required to register charges with the Registrar of Companies
change in membership
whether a new member can join an LLP, and the mechanism for agreeing to a new member joining, is governed by the LLP agreement
if a new member joins an LLP…
- LLP must deliver a notice to the Registrar of Companies within 14 days of appointment
- done by filing form LL AP01/AP02 at Companies House (for and individual member/corporate member)
- it requires the member to give both a service address, which can be the LLP’s place of business, and a residential address, along with full name, former names and date of birth
when a member leaves an LLP…
- LLP is required to file form LL TM01/TMO2 at Companies House within 14 days
the LLP agreement
LLP Regulations 2001 provide a set of default rules
LLPs can have their own written partnership agreement
common terms found in LLP agreements:
- capital and profits
- management and decision making
- leaving the LLP
LLP agreement: capital and profits
default provision is that the member of the LLP share equally in the capital and profits of the LLP
members can enter into an agreement which varies this default position
no default provision regarding losses, because these are borne by the LLP itself
all that members of an LLP risk financially is losing their capital contributions and not being repaid if they have loaned any money to the LLP
LLP agreement: management and decision making
the default rules provide that every member may take part in the management of the LLP
also state that members are not entitled to remuneration for taking part in management
members can enter into an agreement which varies this default position
ordinary matters of the LLP can be decided by a majority of the members
changing the nature of the business and changing the terms of the contract between the members can only be done by unanimous consent
LLP agreement: leaving the LLP
members can leave the LLP by giving reasonable notice to the other members
no default provision on expulsion of members -so this provision should be included in the LLP agreement
if the members wish the bankruptcy of one of their members to automatically cause termination of that person’s membership of the LLP, then they must include this in the LLP agreement - legislation does not provide for this
when a member leaves an LLP, the LLP must notify Companies House on form LL TM01 within 14 days of the member leaving
advantages of an LLP
- members have limited liability for the debts of the LLP
- they are able to grant fixed and floating charges over their assets, unlike general partnerships
- they also benefit from having a great deal of leeway with regard to their management structure
- they can appoint an administrator
disadvantages of an LLP
- administrative and accounting requirements
- LLPs must file accounts with the Registrar of Companies and must file other information, such as notice of termination of membership, with Companies House (then available for public inspection)
- LLPs are also subject to potential clawback provisions on insolvency
