Set up a limited liability partnership

A limited liability partnership is still a relatively new vehicle for running a business. It is a cross between a partnership and a limited company. It was introduced in England by the Limited Liability Partnerships Act 2000.

A limited liability partnership is a legal business entity separate from its members able to enter into contracts in its own right, own property and have fixed and floating charges secured over its assets.

The members of a limited liability partnership have limited liability similar to shareholders in a limited company. But, unlike a limited company, there is no separation of the roles of shareholders and directors.

A limited liability partnership is formed by filing incorporation documents at Companies’ House. The forms can be downloaded from their website – www.companieshouse.gov.uk

Although there is no necessity for it, in practice every limited liability partnership should have an agreement between the members which sets out the terms on which the limited liability partnership will operate – just like an ordinary partnership.

In order to form the limited liability partnership, the business name has to be available for registration – you can check names on the Companies House website. 

The requirements for a limited liability partnership are:

Annual accounts must be filed at Companies House showing ‘a true and fair view’ of the business. These accounts will be available for inspection. When the profits exceed £200,000, the profit attributable to the highest-earning member must be shown.

The papers at Companies’ House must show the names and addresses of all the members and any change in the members must be notified within fourteen days.

There must be at least two “designated members” who are responsible for dealing with all the formal documentation, filing of returns, etc. Designated members who fail to carry out their duties could be liable to be fined.

Certain information must appear on the stationery and the website of an LLP including the:

•    trading name and the fact it is a limited liability partnership
•    place of registration
•    registration number
•    registered office address
•    VAT number if it is registered for VAT

Auditors are usually only needed it the turnover is more than £5.6 million. When drafting a Limited Liability Partnership Agreement, the following points need to be considered:

•    The agreement should be prepared before the papers are filed at Companies House to incorporate the limited liability partnership.

•    The parties to the agreement will be the members (individuals or companies) establishing the limited liability partnerships.

•    Specify which of the members will be the “designated members” mentioned above. 

•    Specify the name of the limited liability partnership (remember that until the papers are filed, there is no certainty that the name will be available)

•    Specify the address of the registered office and the accounting reference date (i.e. the date to which the annual accounts are made up each year)

•    State the capital contributions of each of the members and deal with the possibility of additional capital

•    Detail the profit shares of each of the members and any rights they have to draw income on account of their profits

•    Deal with the decision-making procedures – listing those matters on which the consent of all or a specified majority of the members will be required

•    Deal with any requirements for members to retire at a specified age, and any notice period which must be given if a member wishes to retire before then. 

(This is not an easy topic as the Age Discrimination Regulations introduced in 2006 which allow a compulsory retirement age of 65 for employees, do not have any such provision for partners.)

•    Set out the grounds on which a member can be expelled from the limited liability partnership.

•    Deal with the transfer of a member’s interest in the limited liability partnership on his death, retirement or expulsion.

•    Cover such matters as holiday entitlement of members.

•    Include a dispute resolution procedure.

You can purchase a Limited Liability Partnership Agreement template from ContractStore.com for £50 (excl vat).

By Giles Dixon, managing director of business contract supply service, ContractStore.com.

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By Giles Dixon  on   Jul 11,2008

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Keywords

business legal structures    LLPs    tax    company formation   

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