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| 1. LLP subscribers may be residents outside the UK.
2. You must appoint a minimum of 2 Members (Partners).
3. Members can be corporate bodies or private individuals.
4. A Member can be of any nationality.
5. They have legal identities separate from its members.
6. Individual members are almost totally protected against liability.
7. Management, distribution, etc., are governed by the partnership agreement.
8. A British LLP must have at least two designated members.
9. You have to register with Companies House, the method is similar to registering a company.
10. LLP can buy and sell property in the name of the organisation.
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- DEAR VISITORS, Welcome to Coddan online UK Limited Liability Partnership (LLP) registration agent. We recommend reviewing this site in its entirety, so that you are knowledgeable of the UK jurisdiction and the powers granted to British LLPs. We will guide you through the process of registering your limited liability partnership and establishing your registered identity. Complete and submit application form. Adequate completion and submission of this form, along with the provision of payment, will enable Coddan to register your proposed LLP within five business days. We will express mail your LLP documents to the mailing address you specify in your incorporation order. If you want to become familiar with the description and the contents of UK LLP formation packages, offered by Coddan and to find above, what kind of service is included in this or that UK LLP incorporation package, to get an idea about the price of annual renewal of the service, and about the general legal requirements to the LLP incorporation within foreign countries, please, select the package you need from the list, situated below the banner. The information in the banner will be renewed according to the package you've chosen.
Please note » The prices payable for the items that you order are clearly set out in the web site. There will be no contract of any kind between you and us unless and until we receive payment from you. We act as your agent in the incorporation of companies and electronic filing of Companies House forms. We are not able to guarantee that any such filing will be acceptable to Companies House, nor are there any contractual obligation upon us to do so. If Companies House rejects incorporation or other electronic filing, we will credit your account with a full refund and the contract between us will be made void. Companies House does not offer a cancellation facility for the incorporation of companies or the electronic filing of documents. We will be unable to cancel any such submission on your behalf and will not refund any payment you have made. All prices shown at Coddan Web Site (www.myllc.co.uk) are in Great British pounds.
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 United Kingdom Limited Liability Partnership Advantages & Disadvantages
British Limited Liability Partnerships (LLP) is an alternative corporate business vehicle that gives the benefits of limited liability but allows its members the flexibility of organising their internal structure as a traditional partnership. It has both corporate and partnership characteristics. Despite the advantages of a Partnership the unlimited nature of partners liability in an increasingly litigious world has prompted the arrival of Limited Liability Partnerships.
The LLP is a type of business vehicle which is new to the United Kingdom, although it is well established in the USA and has been available under legislation in Jersey since 1996.
The genesis of the LLP Act lies in the 1990s. During that decade, the increasing incidence and scale of actions against professional advisers for liability in respect of financial loss to stakeholders became a matter of acute concern. Audit firms in particular came to feel highly exposed, for two reasons. First, since aggrieved creditors or investors of a failed company may seek redress against the company's directors or its auditors, it was felt by many in the audit profession that they, who are likely to carry substantial professional indemnity insurance, were being specifically targeted by litigants regardless of the level of their fault for the loss claimed. The cost to firms of defending actions rose sharply in the decade с as did the cost of insurance. Second, under English and Scottish partnership law, each partner is jointly and severally responsible for the liabilities of the firm. In the light of the increasing level of risk, it became harder for many in the larger firms to reconcile their firms' increasing size and specialization with the traditional partnership structure, in which all partners are agents of each other. Many felt that to require each partner in a large, highly specialised firm to accept unlimited financial responsibility for the actions of his or her partners had become an unrealistic proposition. It was speculated that, given the huge sums which were increasingly involved in negligence claims, the continuing exposure of partners to joint and several liability could deter the most talented young accountants from entering the audit profession. Were this fear to be realised, it could, in the long term, damage the quality of UK auditing and, in turn, the whole of the financial services sector.
Towards the end of 1996, the then President of the Board of Trade, following concerted lobbying by large audit firms, committed the government to bringing in a law to establish the LLP as a means of addressing these concerns. On the change of government in May 1997, the incoming Labour administration adopted this plan and the work on drafting LLP legislation continued without interruption. There has been extensive consultation with interested parties during the drafting process. The most important change which resulted from the consultation was to abandon the government's original plan to restrict access to the LLP structure to large, regulated, professional firms. The presumption behind this proposed restriction was that, since it was the large, professional firms that had lobbied hard for the creation of the LLP, only firms in that sector needed to be considered as possible adopters of the new vehicle. It soon became apparent, however, that it would be unfair and restrictive to limit access to the new legal entity to firms with more than twenty partners and firms that conducted a particular line of business. It was, accordingly, agreed that the right to set up an LLP should be extended to firms of all sizes and which carried on business of any lawful type.
An LLP is a corporate entity with its own separate and distinct legal existence, like a company. It is the LLP, which enters into legal agreements, not the individual members. For taxation purposes, the members (and not the LLP) are treated as if they were carrying-on the business personally and taxed as self-employed. They are also treated as owning the assets of the business personally. An Limited Liability Partnership may be formed by two or more persons (individuals or companies, and not necessarily United Kingdom resident) to carry-on a trade or business. To form an LLP, the partners have to file an incorporation document at Companies House. The owners and managers of an LLP are the same. The management structure and relationship between the partners are a matter for agreement between them and may be recorded in a separate LLP Agreement, similar to a Partnership Agreement.
English LLP's advantages: no personal liability on a member for the LLP's debts and contracts. No joint and several liabilities for the negligence of any member. Members' liability to contribute in a winding-up is limited to the amount they agree to contribute in the event of a winding-up as recorded in the LLP agreement. The Limited Liability Partnership is a registered United Kingdom entity, which obtains a Certificate of Incorporation and a registration number from the Registrar of England and Wales or Scotland. A Limited Liability Partnership registered in the Great Britain is not itself liable to UK tax (unlike a English company). If any partner is non-United Kingdom resident, then non-UK source income of the partnership is not taxable in the United Kingdom. If the management and control of the partnership is situated overseas, and the trade is carried on abroad, UK resident but non-domiciled partners will likewise not be liable to United Kingdom tax on partnership profits. United Kingdom Limited Liability Partnership has fewer compliance and disclosure requirements than UK companies.
UK LLP's disadvantages: disclosure: information (in particular accounts and an auditors' report) must be filed with the Registrar of Companies and becomes public. Regulation: auditing and filing requirements.
The key advantage of a LLP compared with a traditional partnership is that the members of the United Kingdom Limited Liability Partnership (it is very important that they should not be called partners but members) are able to limit their personal liability if something goes wrong with the business, in much the same way as shareholders in a company have always been able to do. Of course anyone lending money to the LLP such as a bank may still require personal guarantees from the members, as they frequently do with shareholders in a company.
Where business owners have wanted to limit their personal liability in the past, they have normally set up companies and any profits made by those companies are subject to corporation tax. Dividends paid by the companies can then be taken as income of the shareholders. LLPs are taxed quite differently in that the profits are treated as the personal income of the members as if they had run their business as a partnership. The taxation of companies and partnerships is very different but taxation should not be the main consideration in choosing a business vehicle.
English Limited Liability Partnerships will produce and publish financial accounts with a similar level of detail to a similar sized limited company and will have to submit accounts and an annual return to the Registrar of Companies each year. This publication requirement is far more demanding than the position for normal partnerships and some specific accounting rules may lead to different profits from those of a normal partnership.
- UK Limited Liability Partnership Corporate Characteristics
Corporate characteristics: an LLP is a body corporate, a legal entity in it's own right with it's own assts and liabilities, separate from its members. LLP members have limited liability in the same way that shareholders have in limited liability companies. Contractual arrangements bind the LLP not the members, and in the event of negligence or other torts by other members (or employees) are not jointly or directly liable. Members may be liable for their own negligence or other torts like company directors if claimants can show they entered into arrangements relying personally on the member as well as the LLP. Suitably worded engagement letters may be able to control such exposure. Third Parties can assume members are authorised to act on behalf of the LLP and a member is still a member unless the third party has had notice or notice been delivered to the Registrar. Floating charges can be created on the LLP. LLPs must file accounts at Companies House showing a "true and fair view" according to generally accepted accounting standards. No restriction on partner numbers. The provisions of the Companies Act 1985 and the Insolvency Act apply to LLPs in the same way as for companies. For instance, the rules concerning fraudulent and wrongful trading, disqualification of directors and insolvency and winding-up procedures.
LLP is not a partnership. A LLP is a new species of company, with 'members' and a constitution. The LLP is registered at Companies House like a company, owns assets and contracts with the outside world in its own right.
But there are numerous differences between a LLP and a Companies Act company. It is not bound by the wide range of management requirements, arrangements for meetings, voting rights and so on which apply to a company: the members can draft a constitution which is simpler and suits the way the business actually works. LLPs are not obliged to have directors and all members can take part in management unless they agree otherwise. Like a partnership, all members are agents of the LLP and when a member leaves a simple notice filed at Companies House it is notice to all the world that he or she is no longer a member.
LLPs are obliged to file returns and at least one member has to be 'designated' as the person responsible for the filing requirements - like a company secretary. As with companies, LLPs have to file accounts, which must be audited, subject to the same exemptions as apply to small companies and disclosure has to include the amount of profits attributable to the highest paid member and the home addresses of members. There have been some concerns expressed at these last two requirements.
Which Form of Business-Entity to Choose?
The decision as to the form of business is very important. It can be costly and time consuming to change the form of a business once it is established. The decision should be incorporated in any business plan. Factors which are relevant in making the final decision include:
Limited Liability. If the business itself is a high risk business which may give rise to expensive legal action, e.g. the building trade, limiting the liability of the persons involved in it may be important, and a limited company the most appropriate form of business.
Size. The estimated level of turnover will be one important factor in determining the most tax efficient form of business.
Outside/Inside Investors. The nature of investment in the business is another factor to be considered. If there is to be an outside investor then a limited company may be best. If the people carrying on the business are also the investors in the business, then a partnership may be more appropriate. - Limited Liability Partnership' Members
The "members" of the LLP are the individual persons through whom the LLP operates. The term as it is used in the context of LLPs should not be confused with its meaning in the context of limited companies, since the member of an LLP will invariably have management as well as ownership rights. The legislation does not give a great deal of guidance as to the overall legal responsibilities and duties of members, other than to imply, by virtue of their status as agents of the LLP, that they owe fiduciary duties to it. The full extent of member' duties will, inevitably, fall to be clarified by the courts. In relation to the specific areas of wrongful trading and clawback of withdrawals, referred to below, it is provided that the courts are required to assess a member's conduct in the light of the knowledge, skill and experience that may reasonably be expected of a person occupying that role. In the circumstances of these provisions at least, members will be expected to act in accordance with a legal benchmark of skill and care. The main issues associated with membership are as follows.
Appointment Of Members. The first members of the LLP (as already stated there must be at least two of them and they may be individuals or corporate bodies) are those who are listed in the incorporation document as being its first members. Thereafter, the circumstances in which persons may become (and cease to be) members are left to be decided by the internal rules of the firm. A member may cease to be a member in accordance with an agreement made with the other members or, in the absence of any agreement on the procedure to follow in this regard, by giving reasonable notice to the other members. Where persons either become or cease to be members, notification must be made to the Registrar within 14 days. Details of changes in the name or address of a member will need to be filed within 28 days.
Status Of Members. The members of the LLP are, broadly, the equivalent of the partners in a partnership and the owner/managers of a limited company. Whereas partners in a partnership are (under English law) the agents of each other, members of an LLP are, expressly, agents of the LLP (s6 LLP Act). The members have a financial stake in the firm and, in the absence of contrary agreement, a right to participate in its management. Since the LLP, unlike the English partnership, has legal personality, it can and does act as a principal in agency terms. Each member of the LLP can, therefore, bind the firm. Under s6(2) of theLLP Act, however, the LLP will not be bound by the actions of a member if that member has no authority to act for the LLP in the respect concerned and the person they deal with either knows that they lack such authority or does not know or believe them to be a member of the LLP.
As far as third parties dealing with an LLP are concerned, a person who has ceased to be a member is regarded as still being a member unless the third party has had notice of such cessation or due notice of the member's cessation has been delivered to the Registrar as required. Thus, departing members should, in their own interests, make sure that proper notice is given. s4(4) of the LLP Act provides that a member shall not be regarded as being an "employee" of the LLP unless, in the case of a converting partnership, he or she was regarded as being an employee of that partnership. The intention of this appears to be to ensure that a salaried partner of a partnership which converts to LLP status may continue to be deemed to be an employee.
Designated Members. The term "designated member" is introduced by the Act to indicate the persons within the LLP who are to assume responsibility for certain statutory compliance functions on behalf of the firm. Designated members are responsible under the Act for putting their names to and/or filing a range of statutory documents, such as the annual accounts, the annual return and details of changes in membership. In this, their role will be comparable to functions carried out by the directors and secretary of a limited company. There must be at least two designated members in each firm: if the number falls below two, every member is deemed to be a designated member. Where an LLP fails to comply with a specific obligation, in most cases both the LLP and its designated members will have committed an offence. Each LLP must, on incorporation, indicate which of its members is to hold the post of "designated member" (or state that every member is to be a "designated member"). Where individual members are specified at the outset, others may become designated members at any time by agreement with the other members. Details of resignations and appointments of designated members are required to be notified to the Registrar in an approved format within 14 days. (This does not apply where the LLP has declared to the Registrar that all of its members are to be "designated members").
Shadow Members. The company law concept of "shadow director" is extended to LLPs. Thus, in the (perhaps unlikely) event that the members of an individual LLP are collectively accustomed to acting in accordance with the instructions of a particular person, that person will be deemed to be a "shadow member" of the LLP and will be subject to the same liabilities as members proper. A person who issues instructions purely in a professional advisory capacity will not be deemed to be a shadow member.
Disputes Between Members. While the expectation is that LLPs will make their own arrangements to provide for dispute resolution, there are three residual statutory provisions in this regard. First, the regulations apply to LLPs sections 459-461 CA 85. These sections, as they apply currently to companies, entitle a member or members with a minority interest to petition the court on the ground that the affairs of their company are being run in a way which is unfairly prejudicial to their interests. If, on an application by a member or members of an LLP, the court finds in favour of the applicants, it may order, inter alia, the petitioning members' interests to be bought out or that a change be made in the LLP Agreement. Note, however, that members of an LLP can, by unanimous written agreement, determine to exclude the application of the sections concerned for whatever period they determine. Conceivably, the exclusion could be of indefinite duration. Second, under a modified version of s431 CA 85, the Secretary of State may initiate a formal statutory investigation into the LLP's affairs on the application of 20% of the current membership of the LLP. Third, paragraph 8 of the LLP Regulations states that no majority of members of an LLP may expel any member unless a power to do so has been conferred by express agreement between the members.
The LLP may notify the Registrar that all members of the Limited Liability Partnership are designated members or that specified members will be designated (Form LLP 8 - and, if relevant, Form LLP 288 (c)); the effect will be as though this had been stated in the incorporation document. When a person ceases to be a member of the LLP, that person also ceases to be a designated member.
The following functions may only be performed by, or are the responsibility solely of, a designated member or designated members of an Limited Liability Partnership: signing Form LLP 3, notice of change of name of LLP. Signing Form LLP 8 giving notice under s. 8 as to whether all members, or just specified members, of the Limited Liability Partnership are designated members. Signing Forms 288 (a) (b) or (с) relative to changes of members or in their details. Signing the balance sheet in the annual accounts. Filing annual accounts with the Registrar. Signing Form 244 to claim an extension of three months to the period allowed for filing annual accounts with the Registrar. Signing annual return Form LLP 363 (and associated penalty for non-filing). Appointing the auditors. Fixing the auditors' remuneration (members may determine another method of fixing remuneration). Removing the auditors. Signing Form LLP 652 a for voluntary striking off of Limited Liability Partnership (and related duties assigned to designated members).
The duty to comply with an order for enforcement of delivery of documents to the Registrar. Formal documents for LLP may be served on a designated member. Various functions under the Insolvency Act 1986 including: giving a statutory declaration of solvency preceding a members' voluntary liquidation and making a statement of affairs in a creditor's voluntary liquidation. A designated member in default is liable to a penalty in certain cases such as the failure of an LLP to change its name following a direction to do so and in relation to failures to carry out responsibilities as set out above.
- Liability Of Members And Designated Members
This issue can be looked at under three main headings: 1) Financial liability. 2) Criminal and civil liability under the LLP Act and Regulations. 3) Disqualification.
Financial Liability. Members' guarantees. s1(4) of the LLP Act states that the members of an LLP have such liability to contribute to the firm's assets in the event of its winding up as is provided for in the Act. The LLP Regulations expand on this by modifying, in its application to LLPs, s74 of the Insolvency Act 1986. This modified section provides that, in a winding up, any present or past member is liable to contribute financially to the extent that they have agreed with the LLP or with other members.
However, a person who has ceased to be a member will not be liable if the agreement between them and the firm exempts them from continuing liability. Therefore, if the Agreement between the members requires each to pay the £100 on the winding up, this is the amount which the law requires them to pay to the liquidator. To this extent, the position of the member as regards personal liability is comparable to that of the member of a company limited by guarantee. It will be up to each LLP, when drafting its own Agreement, to decide how it wishes to deal with this aspect.
Membership falling below two. By application of s24 CA 85, where an LLP continues for more than six months with a single member, that member becomes liable jointly and severally with the LLP for the debts of the firms contracted for during that period.
Liability for cheques, etc. By application of s349 CA 85, any member who signs or authorizes the signature of a cheque, order, etc. on which the LLP's name is incorrectly presented is liable to the holder of the instrument (unless the amount is paid by the LLP).
Insolvency: Wrongful Trading. (s214 Insolvency Act.) Where an LLP goes into creditors' (i.e. insolvent) voluntary liquidation, the liquidator will be able to investigate the circumstances prior to the firm's winding up in order to assess whether any of the firm's members should be ordered personally to pay some contribution (to be decided by the courts in light of the circumstances of the case) towards paying off the company's debts to its creditors. If the liquidator can identify a point at which, in his or her opinion, a member knew or ought to have known that the LLP would not be able to avoid insolvent liquidation, he or she may apply to the court for a s214 order to be made against the member concerned. It will be a defence for any members, in court, to be able to demonstrate that they took "every step" to minimise potential losses to creditors. In other words, in a situation where the members of an LLP conclude (or, in retrospect should, in the circumstances, have concluded) that their firm cannot avoid insolvent liquidation, they should take some form of remedial action forthwith. As is the case with respect to the application of s214 to companies, the courts, when assessing whether an individual member knew or ought to have known the likely fate of the firm, will be able to apply both a subjective test and an objective test. In the former case, the courts will consider whether the member concerned, given their particular expertise and experience, could have been expected to understand the firm's situation and take appropriate action on the strength of it. In the latter case, the member's conduct will be assessed against an objective test of what a reasonable person could have been expected to know and do as a member of an LLP.
Insolvency: Adjustment of Withdrawals (s214A Insolvency Act). Popularly referred to as the "clawback" rule, this new provision, which is inserted into the Insolvency Act 1986, has been drafted exclusively for application to the special position of LLPs. Under s214A, the liquidator of an LLP may investigate all withdrawals of property made from the firm by any member in the two-year period leading up to the commencement of the LLP's winding up. Withdrawals for this purpose include profit share, salary, repayment or payment of interest on a loan to the firm. The liquidator may make an application to the court where he or she considers that at the time of making any withdrawal, the member concerned knew or had reasonable grounds for believing that the LLP was unable to pay its debts (as defined by s123 of the Insolvency Act) or would become unable to pay its debts following the withdrawal (either on its own or in conjunction with other withdrawals being made by other members at the same time). The court, if it upholds the application, may order a member to make a financial contribution to the liquidator of up to the value of all the property withdrawn by him or her during the two-year period. In considering an application, the court will assess whether each member referred to knew or ought to have concluded that, after each withdrawal, there was no reasonable prospect of the LLP avoiding insolvent liquidation. In making its assessment of the facts that a member should know and the conclusions that they ought to have reached, the court will make reference to a benchmark of a reasonably diligent person, having (i) the general knowledge, skill and experience that may reasonably be expected of a member of an LLP; and (ii) the knowledge, skill and experience that the member in question actually has.
How the courts deal with cases under s214 and s214A will to a great extent define the level of skill and care that the law will expect of members. The introduction of the "objective" test in connection with liability for wrongful trading has had a significant impact on the level of skill and care which the law expects of company directors. If, as many believe, the LLP structure is adopted overwhelmingly by professional firms, the courts might well take the view that the standard of conduct to be expected from LLP members should be higher than that which is expected of company directors.
Liability in tort or contract. As discussed in the Introduction, the LLP legislation was developed largely in response to concerns expressed by professional firms about the exposure of themselves and their partners to liability. The protection which the corporate structure of the LLP offers to individual members should not, however, be taken entirely for granted. In a House of Lords debate, during the course of the progression of the LLP Bill, Lord Goldsmith, a former chairman of the Bar Council, suggested that, where members of an LLP acted in a substantive way as if they were (still) partners in a partnership, the courts might decide to "pierce the veil" and treat the LLP's members as if they were in fact partners and outside the protection of the LLP structure. It will be noted that whereas an LLP or a company must be incorporated by a formal procedure, a partnership can be created informally. The courts have also considered whether, in certain circumstances, a director of a limited company may assume a personal duty of care and therefore personal liability. Ordinarily, of course, a director acts on behalf of their company but the distinction between a company and its directors may become blurred, especially since limited companies have been able to function with just one director/member. In the case of Williams v Natural Life Health Foods Ltd (1998 BCC 428), the House of Lords considered an appeal against a ruling that a company director owed a personal duty of care to a customer of his company. The Lords overturned the earlier ruling but gave guidance on the circumstances in which a personal duty might arise. In order to establish a personal duty of care, there must be not only a special relationship between a director and a client or customer, but a clear assumption of responsibility. Further, for the courts to impute a personal duty of care to a director, it is necessary for there to be objective evidence that, in the circumstances, it is reasonable for a customer to rely on the director's assumption of personal responsibility. Such evidence would include oral or written statements and the actual conduct of the director. In light of the above, members of LLPs should ensure that, in all their dealings with clients or customers and the public, they do not give cause to believe that the activity being undertaken is undertaken other than by its agents on behalf of the LLP. In the case of a professional firm, the engagement letter should be precise as to the contracting parties.
Criminal and civil liability under the LLP Act and Regulations. The LLP Act and Regulations set out a large number of offences for failure to comply with the statutory responsibilities placed on them by or under the Act. In the case of members generally, their responsibilities are invariably collective. For example, they are collectively responsible for appointing auditors and preparing accounts. Designated members are additionally responsible for filing information and providing information to third parties. For example, they are required by law to file the LLP's annual accounts and to make a statutory declaration in the case of the LLP's members voluntary winding up. Financial penalties are provided for any breach of any of these requirements.
Disqualification. The Company Directors Disqualification Act 1986 (CDDA) is applied to members of LLPs. Accordingly, the courts can make a disqualification order against any member (or shadow member) of an LLP if it feels that their conduct in that capacity warrants such action. A disqualification order made against a member of an LLP will preclude the person concerned from acting as a director of a company as well as a member of another LLP (and vice versa). Disqualification orders can be made under the CDDA in respect of breaches of on-going obligations, for example, following prosecutions for failing to deliver statutory documents to the Registrar, and also on the specific ground of "unfitness", as initiated by the liquidator following the winding up of the LLP. One additional paragraph is added to the list in Schedule 1 of the CDDA of matters which the court is required to take into account when considering whether any individual member of an LLP is "unfit". This new provision requires the court to consider the extent to which the member has been responsible for the finding by a court that any member of the LLP concerned is required to make a contribution under s214A of the Insolvency Act (this is the "Clawback" rule referred to previously).
- British Limited Liability Partnership Formation
In order to form a Limited Liability Partnership in the United Kingdom, there must at the outset be at least two people who are associated for the carrying on of a lawful business with a view to profit and who subscribe their names to an "incorporation document". A written statement must also be given that there has been compliance with the requirement that at least two persons, associated for the purpose of carrying on a lawful business with a view to profit, have subscribed their names to the incorporation document. The statement must be made by a subscriber to the incorporation document or a solicitor engaged in the formation of the LLP. The incorporation document and the statement have been combined into one prescribed Form: LLP 2. This form, duly completed and signed, must be delivered to the Registrar together with the prescribed fee.
The incorporation document contained in the Form LLP 2 is required to contain specified items of information: the name of the Limited Liability Partnership, whether the registered office is to be situated in England and Wales, in Wales or in Scotland, the address of the registered office, the name and address of the persons who are to be members on incorporation and whether some or all of the members are to be designated members.
The "statement" contained in Form LLP 2 does not take the form of a statutory declaration but an offence is committed if a person makes such a statement which that person knows to be false or does not believe to be true. A person who commits this offence is liable on summary conviction to imprisonment for up to six months or a fine that does not exceed the statutory maximum (currently £5,000.00) or both. If the conviction is on indictment the person will be liable to imprisonment for a period of not more than two years or a fine or both.
The name under which an Limited Liability Partnership is to be registered is subject to various restrictions and requirements. The name of an LLP must end with the expression "Limited Liability Partnership" or the abbreviation "L.L.P." or "LLP" (or, where the registered office of the LLP is to be in Wales, a specified Welsh equivalent). The name must not be the "same" as the name of any entity on the Registrar's index of names maintained under Section 714 CA 1985. The name may not include, without the required permission, any of the various prescribed controlled words. In other words, the usual rules for company names apply with the necessary adaptations for Limited Liability Partnerships. The Secretary of State also has power to direct a change of an LLP's name within 12 months of its adoption if, in the DTI's opinion, it is too like the name of another entity on the index of names.
When the Registrar's office receives the Form LLP 2, it retains and registers it. The "statement" contained in Form LLP 2 may be accepted by the Registrar as sufficient evidence that the requirements in Section 2 (1) (a) have been complied with. When the documents have been registered, the Registrar issues a certificate of incorporation which is conclusive evidence that the requirements of Section 2 have been complied with and that the LLP is incorporated by the name specified in the incorporation document.
Form LLP 2 sets out: name of the LLP; address of registered office; name, full address and date of birth of each member. Which of the members are to be designated members or that all are designated members who are responsible for compliance with the requirements of the LLP Act. Unlike limited companies, Limited Liability Partnerships do not have a Memorandum or Articles of Association. However, it is important for members to have a valid agreement - this does not need to be provided to Companies House.
- Limited Liability Partnership Stationery
As with limited companies, there is certain information that must be displayed on the LLP's stationery. All business letters, notices and publications, cheques, bills, invoices etc must bear the full name of the UK Limited Liability Partnership including the words Limited Liability Partnership or the abbreviation LLP. In addition, all business letters and order forms must show the following: the place of registration - e.g.; "Registered in England & Wales" or "Registered in Scotland". The registered number. The fact that it is a Limited Liability Partnership. The address of its registered office.
- Responsibility To Prepare Accounts (ss226 & 227 CA 85)
The members of the LLP are responsible for preparing the firm's annual accounts and, if applicable, consolidated accounts for it and its subsidiaries. The accounts must be approved by the members and signed by a designated member. The accounts, together with the auditor's report where appropriate, must be sent to every member of the LLP and to all the firm's debenture holders (if any) within one month of their being signed, and in any event no later than ten months of the end of the relevant reference period. The accounts, which must be properly prepared and give a true and fair view, comprise the balance sheet, profit and loss account and notes to the accounts. There is no requirement to prepare a directors' report. Schedule 6 (particulars of directors' emoluments) does not apply to LLPs.
- Responsibility To Prepare Accounts (ss226 & 227 CA 85)
The members of the LLP are responsible for preparing the firm's annual accounts and, if applicable, consolidated accounts for it and its subsidiaries. The accounts must be approved by the members and signed by a designated member. The accounts, together with the auditor's report where appropriate, must be sent to every member of the LLP and to all the firm's debenture holders (if any) within one month of their being signed, and in any event no later than ten months of the end of the relevant reference period. The accounts, which must be properly prepared and give a true and fair view, comprise the balance sheet, profit and loss account and notes to the accounts. There is no requirement to prepare a directors' report. Schedule 6 (particulars of directors' emoluments) does not apply to LLPs.
- Delivery Of The Accounts (ss242 & 242A CA 85)
The designated members must file the LLP's accounts with the Registrar within ten months of the end of the reference period. Noncompliance is an offence. In addition, those late filing penalties which are imposed on private companies are applied to LLPs (in January 2001 these ranged from the £100 for a delay of up to three months to the £1,000 to a delay of over a year).
- Modified Accounts For Small LLPs (s246 CA 85)
Small LLPs (as defined by reference to the accounting thresholds in s247 CA 85) may prepare their accounts in accordance with the format and disclosure rules in Schedule 8 CA 85 rather than Schedule 4. Should they do this, they are required to carry the standard statement in the balance sheet to indicate that this is what they have done. Small and medium-sized LLPs may also file abbreviated accounts in accordance with Schedule 8.
- Audit Exemption (s249A-E CA 85)
LLPs which are "small" and whose turnover is below the £1 million are exempt from external audit on the same basis as companies.
- Content And Format Of The Accounts (SCHEDULE 4, 4A, 5 & 8 CA 85)
Specific references to share capital are, for obvious reasons, deleted from the standard Schedules in their application to LLPs. The other main divergences from the Schedules are as follows.
Formats. Balance Sheet formats 1 and 2 in Schedule 4 are both available to LLPs. However, in respect of each, the specific headings dealing with share capital (namely, "called up share capital not paid" and "own shares") and the notes which support those items are deleted with respect to LLP accounts. In their place are two new "Arabic" headings: "Loans and other debts due to members" and "Members' other interests". Under the latter, there are three new "Roman" subheadings: "Members' capital", "Revaluation reserve" and "Other reserves". A new note 12, supplementing "Loans and other debts due to members" provides that the following amounts must be shown separately under that heading: the aggregate amount of money advanced to the LLP by way of loan the aggregate amount of money owed to members by the LLP in respect of profits п any other amounts. In the profit and loss account, the item "profit or loss for the financial Year" is replaced by "profit or loss for the financial year before members' remuneration and profit share".
Notes to the accounts. Revaluation reserve. The revaluation reserve of an LLP may not be under reduced under s31(3), (3A) & (3B) Schedule 4 CA 85. Loans, etc. New disclosures, to reflect the special character of the LLP, are introduced. There is a new paragraph 37A inserted in Schedule 4 for LLP purposes, headed "Loans and other debts due to members". This requires disclosure of the following: the aggregate amounts of loans and other debts due to members as at the start of the financial year the aggregate amounts contributed by members during the financial year the aggregate amounts transferred to or from the profit and loss account during the year п the aggregate amounts withdrawn by members or applied on behalf of members during the year the aggregate amount of loans and other debts due to members as at the balance sheet date the aggregate amount of loans and other debts due to members that fall due after one year. NB. The substance of this paragraph is also applied to group accounts and to "modified" accounts prepared by small LLPs.
Remuneration of members. A new paragraph 56A is applied to LLPs. This requires LLPs to give two items of information. First, a figure for the average number of members in the firm during the year must be given. Second, if the amount of the LLP's profit before members' remuneration and profit share exceeds the £195.00,000, the amount of profit (including remuneration) which is attributable to the member with the largest entitlement to profit (including remuneration) must be disclosed. For the purposes of deciding the amount to be disclosed in relation to the highest earning member, remuneration is to include emoluments specified in paragraph 1(1)(a),(c) and (d) of Schedule 6 CA 85 and which are paid by or receivable from the LLP, its subsidiary undertakings and any other person.
Merger accounting. It is specifically provided that where a "parent" LLP adopts the merger method of accounting in preparing its group accounts, it must comply not only with the remainder of the revised paragraph 11 of Schedule 4A but with generally accepted accounting principles or practice. This latter requirement effectively requires LLPs to comply with the guidance contained in the Statement of Recommended Practice (SORP) on LLPs, expected to be issued towards the end of 2001.
- Taxation
While the LLP is a corporate body with separate legal personality, for tax purposes the LLP is to be treated essentially as a traditional partnership. The key features of the statutory provisions on tax are as follows.
Income Tax. Thus, s10 of the LLP Act adds a new section 118Z to the Income and Corporation Taxes Act 1988, providing that a trade, profession or business carried on by an LLP with a view to profit is to be treated for tax purposes as being carried on in partnership by its members and not by the LLP as such. The property of the LLP is to be treated for tax purposes as partnership property. An LLP which meets the test of operating as a trade, profession or business with a view to profit will, therefore, be transparent for tax purposes: like partners, the members of an LLP will be individually liable to tax on their shares of the profits earned by the LLP.
Capital Gains. A new clause (s59A) is added to s59 of the Taxation of Chargeable Gains Act 1992. This provides that, where an LLP carries on a trade or business with a view to profit, assets held by the LLP are to be treated for the purposes of chargeable gains tax as being held by its members as partners, and any dealings by the LLP are to be treated likewise as dealings by the members in practice. Tax in respect of chargeable gains accruing to the members of the LLP on the disposal of any of its assets is to be assessed and charged on each of them separately. Any acquisition or disposal of assets will not be treated as being made by the LLP itself.
Inheritance Tax. A new s267A is inserted into the Inheritance Tax Act 1984. This makes clear that, for inheritance tax purposes, the property of the LLP is to be treated as the property of the partners and that the formation, change in membership and dissolution of an LLP are to be treated as the formation, change in membership or dissolution of a partnership. Business relief will be available on that basis. Any transfer of value made by or to an LLP is to be treated as made by or to its members in partnership.
Stamp Duty. Stamp duty is not chargeable on a transfer of property by a person to an LLP within one year of its incorporation provided that, immediately before incorporation, two conditions are satisfied. The first condition is that the person making the transfer is either a partner in a partnership which comprises all the persons who are to become members of the LLP (and no one else); or a person who holds the property transferred as nominee or bare trustee for one or more of the partners in that partnership. The second condition is that: the members' entitlements to the property is to be the same as their entitlements to it in the partnership; or no difference in the entitlements arises as part of a scheme of which the main or one of the main purposes is to avoid tax.
National Insurance. Where income tax is chargeable on a member of an LLP in respect of profits or gains arising from the carrying on of a trade or profession by the LLP, Class 4 contributions are payable by that member.
Summary. The above paragraphs outline the main statutory provisions on tax in the LLP Act. Further legislation was planned in the Finance Bill 2001 to address the approach to be taken with respect to the taxation of types of businesses, including investment businesses, which might be motivated to adopt the LLP structure for purely tax reasons rather than to obtain limited liability. In respect of the taxation of trades and professions, however, the Inland Revenue published, in the December 2000 issue of Tax Bulletin, its detailed plans for the taxation of LLPs. These plans, which are accessible via the Inland Revenue's website www.inlandrevenue.gov.uk, include the following important points:
Computation of taxable profits of professional businesses - the approach which is taken to the determination of "true and fair view" for the purposes of calculating the taxable profits of a professional business (set out in Issue 38 of Tax Bulletin, which is also available via the Inland Revenue's website), will apply equally to the computation of Schedule D Case II profits of an LLP which carries on a professional business.
Capital allowances - where an LLP succeeds to a business previously carried on by a partnership, this will not in itself give rise to a balancing event for the purposes of the Capital Allowance rules.
Cessation - where an LLP succeeds to a business previously carried on by an old partnership, this will not in itself involve the cessation of the old partnership's trade or profession.
Partnership annuities - where an obligation to pay an annuity's transferred from a partnership to an LLP, the members of the LLP will be entitled to higher rate income tax relief for their share of ongoing payments. Incoming members who assume part of this obligation will also be entitled to such relief.
Capital Gains: partners' interests - so long as the LLP carries on a trade or profession with a view to profit, a Partner's capital interest as a member of the LLP will not be regarded as a chargeable asset in its own right. Members of the LLP will be directly taxable on their share of the LLP's assets.
Ceasing to trade - where an LLP ceases to carry on a trade or profession it will no longer be regarded as a "partnership" for tax purposes and will instead be regarded as a "body corporate". The LLP will then cease to be "transparent". Where an LLP goes into liquidation, chargeable gains on the disposal of the LLP's assets by the liquidator will be computed by reference to the date on which they were first acquired by the LLP and their cost at that date. During the winding up itself, the LLP's capital gains will be treated in the same way as any other body corporate.
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