Limited Liability Partnerships - FAQs

1. What is an LLP?

It 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. The LLP is a separate legal entity and, while the LLP itself will be liable for the full extent of its assets, the liability of the members will be limited.

2. What is the difference between a Limited Company and an LLP?

The main difference is that where Limited Companies are required to abide by the terms and conditions set out in their Memorandum & Articles, a Limited Liability Partnership has a much more flexible structure. An LLP is not required to hold formal board meetings or annual general meetings or pass resolutions.
3. What sort of organisation can become an LLP?

Any new or existing firm of two or more persons can incorporate as an LLP.

4. Can I incorporate an LLP in Scotland as well as England/Wales?

Yes

5. What is the difference between an ordinary member and a designated member?

Designated members have the same rights and duties towards the limited liability partnership as any other member. These mutual rights and duties are governed by the limited liability partnership agreement or by law. However, the law also places extra responsibilities on designated members.
In particular, designated members are responsible for:

• appointing an auditor (if one is needed);
• signing the accounts on behalf of the members;
• delivering the accounts to the Registrar; 
• notifying the Registrar of any membership changes or change to the registered office address or name of the limited liability partnership;
• preparing, signing and delivering to the registrar an annual return (Form LLP363); and
• acting on behalf of the limited liability partnership if it is wound up and dissolved.

Designated members are also accountable in law for failing to carry out these legal responsibilities.

6. Can I convert from being a limited company to an LLP?
The LLP legislation does not allow for a 'conversion process' - in the way that a limited company can convert to PLC status under the Companies Act, for example. limited company wishing to. The process will involve a closely controlled company change of name and an LLP incorporation.

7. How is an LLP managed?

The members agreed between themselves how to run the LLP. One advantage of an LLP over a limited company is the level of flexibility the members have to organise and manage themselves. Members are required to act in the best interests of the LLP and often choose to enter into an agreement or deed of partnership to regulate their dealings between themselves. This is not mandatory and this document does not need to be registered at Companies House, it is private to the members. The designated members are responsible for advising Companies House of changes in membership or registered office details, accounting reference date changes and other statutory filing.

8. To what extent is personal liability limited?

Because LLP's are a new type of entity, there is very little case history examining the extent of liability and precedents have not yet been set. In a professional firm scenario, if a member of a LLP were to give bad advice or otherwise act negligently towards a client and the client suffered a loss as a result, the client may be able to take the LLP to court and be awarded appropriate compensation either from the member who gave the advice or the partnership as a whole. It is unlikely that the other members who were not directly involved in the advice will have any personal liability, unlike a traditional partnership where they would have had joint and several liability for these actions. It is essential to note that this concept has not yet been tested in a court of law and it should not preclude anyone in this type of situation from having the appropriate insurance indemnity cover. It should also be noted that where the partnership becomes insolvent but continues to trade the members can be prosecuted for this offences and disqualified in the same way as a director of a limited company.

9. What are the implications for Third Parties dealing with LLPs?

Every member of a LLP is considered in law to be an agent of the LLP, and as such may represent and act on behalf of the LLP in all its business. As a third party would not normally have access to any partnership agreement they would be entitled to rely on the fact that the member is an agent of the LLP. Anyone entering into financial transactions, such as leasing or factoring agreements or lending money to the LLP may still require personal guarantees from the members in the same way that shareholders of a limited company often give guarantees as security.

10. What are the LLP disclosure requirements?

They are similar to those of a company. LLPs are required to provide financial information equivalent to that of companies, including the filing of annual accounts. Among other things, they are also required to:

• File an annual return
• Notify any changes to the LLPs membership
• Notify any changes to their members names & residential addresses
• Notify any change to their Registered Office Address

11. What are the duties of a designated member?

Designated members are responsible for carrying out certain duties including some of those that would normally be carried out by a company director or secretary. They include such things as signing the annual accounts and filing the annual accounts and annual returns with Companies House and, in the event of Insolvency proceedings, providing any statement setting out the affairs of the business i.e. assets, debts and liabilities.

12. How is an LLP taxed?

An LLP is taxed as a partnership. The internal structure of the LLP is similar to that of a partnership. The members provide working capital and share any profits. Income derived by the members from the LLP will be closer to that of a partnership than to the dividends paid by companies. The Act also provides that any partnership converting to an LLP will receive relief from stamp duty on any property transferred in the first year, subject to conditions. Members will be liable to pay Class 2 and Class 4 National Insurance contributions. For further information on Tax and National Insurance please visit the Inland Revenue Website: www.inlandrevenue.gov.uk

13. Will LLPs be available to charities?

No. LLPs are only available to any lawful business that is carried out with a view to a profit.