Introduction

LLP's have the flexibility and the tax advantages of a partnership with the limited liability for the Members. "Member" in this context is the LLP Act terminology for a Partner in a LLP ans should not be confused with Members of Lloyd's . In this context the word "Member" exclusively refers to Members of a LLP. 

Legal Status

A LLP is a body corporate with a legal entity separate from its Members. Liability is limited to the contributions which may be required under the LLP Act. It is treated like a company in all but tax matters, the tax treatment being the same as a partnership.  

Formation

A LLP is formed by three or more persons who are associated for the purpose of carrying on a lawful business with a view to making profit. Essentially , as for a "normal" partnership. Incorporation documentation is sent to Companies House with a fee of £20. Note that these are the filing fees not the set up costs. 

Regulatory Matters

Statutory Requirements include the filing of an annual return fee at a cost of £30. In addition any changes in membership must be notified to Companies House, as must any change of name and any change to the Registered Office. Changing the name of a LLP attracts a fee of £10.   

Accounting requirements

Similar accounting and audit requirements apply to companies under the Companies Act.The requirements of Schedule 9A of the Companies Act are to apply to Lloyd's LLP's and, therefore, exemptions for small LLP's will not be available in this case.

Membership

Members are those who sign the original "Incorporation documentation" and any other Member who has been accepted into the LLP subsequently. Membership ceases on death, dissolution or resignation. If membership drops to one, the sole Member assumes unlimited liability if Membership is not increased within 6 months. This is the reasoning behind Lloyd's requiring three members. Anyone disqualified from being a company director cannot be a Member. At least two members in a LLP must be "designated members". Such members have responsibility for appointing and removing the auditors, signing the accounts, delivering the accounts and Annual Returns to the Registrar of Companies and notifying the Registrar of relevant changes.   

Members Agreement

All LLP's need to draw up a members agreement. This is a private document and not filed at Companies House. It covers, for example, the amount pledged to the LLP to support underwriting costs and the settlement of any loss incurred, the division of partnership profits and contributions to losses, the indemnity of members against liabilities incurred in the proper conduct of the business, the management of the LLP, how new members are admitted, the availability of books and records for inspection and the expulsion of members.

Winding Up

Although members have limited liability there is liability for "misfeasance", "fraudulent trading" and "wrongful trading" as in company insolvency. A liquidator may be appointed in some circumstances when a LLP is wound up.

Taxation

A LLP is taxed in the same way as a general partnership. In particular income is assessed on the individual members, chargeable gains accrue to members, The LLP does not own the assets for tax purposes. Inheritance tax business property relief is available and members under pensionable age are subject to Class 2 and Class 4 National Insurance contributions, not Class 1 which would be the case if they were company directors. On cessation or insolvency, normal income tax cessation provisions apply.

Further advice

For further advice regarding LLP's contact us on 01299 879140.