Partnerships
Related Information
Limited Liability Partnerships
What is an LLP and should I have one?
LLPs are not, despite their name, a form of partnership but a new hybrid legal entity.
An LLP is a body corporate created by the Limited Liability Partnerships Act 2000 (‘the Act‘). There is no distinction between ownership and management: an LLP is owned and managed by its ‘members‘.
The Act gives the members the freedom to agree how the LLP is to be owned and managed and there are no mandatory statutory provisions relating to share capital or capital maintenance.
The members are free to introduce and remove capital in the same way as partners (although removing capital in an insolvency can create liabilities). In fact, although LLPs are bodies corporate, members are free to run their LLP much in the same way as they do in a partnership.
The benefit of conversion to LLP
The primary benefit of carrying on practice through an LLP, rather than a partnership, is, of course limited liability.
A partner is jointly liable for the debts of a partnership incurred while he is a partner. A member of an LLP is not personally liable for the debts and obligations of the LLP.
The exposure, if the LLP becomes insolvent, is limited to the capital he or she introduces into the LLP and any undrawn profit or sum reserved for tax (which, subject to the accounting treatment adopted, will constitute debts from the LLP to the member for which he or she can prove in a liquidation).
LLPs can be used not only for new businesses but also existing Unlimited partnerships, which can convert into an LLP. Conversion involves transferring the existing business into a new legal entity and while care needs to be taken on the timing and detail of this process it is a relatively common and straightforward transaction.
We regularly handle many such processes and can offer practical advice on the best approach in each case. For further information please contact Susan Jennings on 01634 828277.
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