Frequently asked questions about LLP

A limited liability partnership is a new form of legal business entity introduced relatively recently in April 2001. It has the organisational flexibility of a partnership and is taxed as a partnership. In other respects it is very similar to a company with limited liability.

An LLP is not based on the framework constitution such as Table A, so it is important to have a partnership agreement in place. Our LLP registration pack includes a standard LLP agreement which you can adapt to your own requirements. However, if your requirements are very specific you should draw up an agreement in consultation with a solicitor.

Time scale for incorporation – 5-10 working days

1. LLP Names
   
   All limited liability partnership names must end with the words 'Limited Liability Partnership', or, their abbreviation – LLP. An LLP cannot have the same name as an existing LLP or an existing limited company. See the company names section of FAQ for private limited companies.
   
   
2. Who can form a limited liability partnership?
   
   Any new or existing firm of two or more persons can form a partnership - an LLP. However, limited liability partnerships are not available for all activities such as non profit making activities. Since their introduction in April 2001 LLP’s have become a popular business vehicle for professional firms such as accountancy firms and solicitors.
   As LLP’s are a new concept you should seek professional advice before taking a decision to register an LLP.
   
   
3. What are the requirements of forming an LLP?
   
   Every limited liability partnership must have at least two, formally appointed designated members at all times. If there are fewer than two designated members then every member is deemed to be a designated member. (The limited liability partnership may have decided that all members will be designated members or that only some members will be designated members).
   
   
4. What is the difference between a member and a designated member?
   
   With the agreement of the other members, a member may become a designated member at any time. 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 and the general 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.
   
   
5. Do standard Memorandum and Articles of Association apply to an LLP?
   
   It is important to remember that an LLP has no fall-back constitution – there is no equivalent of Memorandum and Articles of Association or Table A. In addition, the applicable legislation does not provide a detailed regulatory framework in relation to the governance and practical operation of LLP's. The management structure and other matters should therefore be addressed by the members in a separate LLP agreement. Any such LLP agreement is not registered at Companies House and it remains a private document.
   It is advisable to have an LLP agreement in place. There are two main reasons for this:
   
   

   i. The default provisions provided by the Regulations are unlikely to be appropriate in many instances. For example, the default position in the absence of an LLP agreement is that every member my take part in the management of the LLP; all the members are entitled to share equally in the capital and profits of the LLP and no member is entitled to remuneration for acting in the business or management of the LLP.

   ii. There are many issues that default provisions do not address, such as the nature and extent of the capital contributions to be made by the members and how disputes between the members are to be resolved.

   
   
6. What about annual compliance for an LLP?
   
   Similar to those of a limited company.  There is a requirement to provide financial information equivalent to that of limited companies including filing of accounts, annual return, change of membership, members details and registered office.

COMPANIES V. LLP
A COMPARATIVE TABLE

ATTRIBUTES	COMPANY	LLP
Corporate Body
Capacity	May be restricted by objects	Unlimited
Tax	Corporate	As a partnership: 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.
Constitution/Agreement	Compulsory, available on public record Model Articles, in form of Table A etc, are available.	Optional, but in practice will be necessary, partnership law does not apply but elements may apply in the absence of provision by agreement. Totally flexible Private to members No prescribed model
Minimum no of members	1 Shareholder	2 Designated Members
Share Capital		None
Capital Maintenance	Form with authorised Issued cannot be reduced	No restrictions No minimum contribution>
Decision making	Heavily regulated	As in agreement Totally flexible Partnership law does not apply but elements may apply in absence of provision by agreement
Directors		None. But concept of “designated members” for certain matters
Secretary		None
Name restrictions and requirements
Who can bind	Board of Directors	Any member, unless he had no authority and 3rd party know this
Seal	Optional	Optional
Registers		No
Debentures Register
Annual Return to Companies House
Accounts requirements and public filing etc.	Filing accounts in set format. Some audit exemptions and small company exemptions	Generally the same as a company. No directors report. If profits of LLP more than £200,000 disclose the profit attributable to the member with the largest share. No presentation to a General Meeting, but have to send to members.
Auditors	Subject to exemptions	Subject to same exemptions as a Company.
Ability to create floating charge and registration of charges
Strike off etc.
Insolvency Act provisions	Limited Liability of Members Insolvency Act applies	Limited Liability. Generally the same as a company. Members contribute up to amount agreed. Special provision enabling the court to order claw back of funds siphons off from an insolvent LLP