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Since 6 April 2001 when the Limited Liability Partnerships Act 2000 (the "Act") received Royal assent, businesses have been able to trade using a limited liability partnership or "LLP" as the vehicle. (This should not be confused with the "limited partnership" formed under the Limited Partnerships Act 1907). Although the terms "limited liability" and "partnership" appear to be mutually exclusive the Act states that the LLP is a "new form of legal entity" and partnership law is expressly excluded from operation in relation to LLPs.
Important features are:
- The LLP is a body corporate and a separate entity from its members. Therefore it can own property, make contracts and sue or be sued separately from its members. An LLP can also give debentures over its property.
- The members have no liability to contribute to the debts of the LLP if it is wound-up (except in the event of "wrongful trading" whilst insolvent).
- The LLP is taxed as if it were a traditional partnership.
- Every member of the LLP is the agent of LLP, not the other members. If that member does something he/she is not authorised to in the name of the LLP, they will not bind the LLP to that act.
- The LLP does not have the internal management requirements of a limited company. For example, there is no board of directors and as there is no share capital, and there is no requirement to hold annual general meetings.
- The LLP's accounts must give a "true and fair view" of the business and be filed for public inspection with the Registrar of Companies. Accounts are compiled and presented in similar fashion and format to those filed by a limited company.
- The LLP and its membership are governed by the LLP agreement which does not have to be disclosed to the public, unlike a limited company's Memorandum or Articles of Association. Be aware though that in the absence of an agreement, the 'default provisions' of the Limited Liability Partnership Regulations 2001 will apply. For example, unless you agree otherwise, all members of the LLP will be entitled to share the profits equally.
- 'Designated Members' have similar roles and responsibilities as limited company directors for filing information with the Registrar of Companies.
- The provisions of the Business Names Act 1985 apply to LLPs.
In many ways the LLP can be viewed as a mix between the traditional partnership arrangement governed by the Partnerships Act 1890 and the limited company operating under the Companies Act 1985. A very simple overview would be that an LLP enjoys the flexibility of a partnership and the security of a limited company without the same level of Companies Acts bureaucracy and personal liability for the participators.
There are however a few subtle changes to watch though, and it is essential that you take advice from a specialist solicitor, as the advice could prove invaluable. For further information email our LLP specialist andrewknox@veitchpenny.co.uk or call Andrew on 01392 288386.
Past Seminars
18.05.05 -LLP Seminar
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