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Flashcards in Limited Liability Partnership Act 2000 Deck (20)
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1
Q

What is the purpose of the Limited Liability Partnership Act 2000?

A

In 2000 there was another attempt at creating better legislation for limited liability partnerships. LLPs are essentially a hybrid of partnerships and companies.

The main purpose of the LLP Act 2000 was to create a new form of legal entity known as a limited liability partnership (“LLP”). Prior to this act there was no such thing as an LLP. The central features are those of organisational flexibility and limited liability. The LLP Act 2000 therefore creates something of a hybrid between a partnership and a company. The idea is to take the best aspects of both and merge those to create a new entity in law.

2
Q

What are the advantages of the Act?

A

⁃ It is flexible in terms of management.
⁃ It retains a favourable tax regime.
⁃ They can grant a floating charge (which 1890 Partnerships cannot)

3
Q

What are the disadvantages of the Act?

A

⁃ The insolvency regime (amended slightly) which applies to companies applies here.
⁃ The administration involved in registering and preparing accounts is quite hefty.
⁃ The partnership cannot be as secretive due to the requirement of registration of accounts.

4
Q

Why does there need to be separate regulations in Scotland and England?

A

The problem is that insolvency law differs in Scotland and England. Thus there must be separate regulations for Scotland and England covering the insolvency position of LLPs. As a result of this complexity we are not required to understand the complexities of the regulations. The main requirement is that we understand how limited liability works under this Act, and some of the main provisions of the Act. Must look at the act, and the regulations and the regulations modified by regulations. For Example:

As well as the LLP Act, see also [see the textbook]:

(a) The Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009 (SI 2009/1804) - http://www.opsi.gov.uk/si/si2009/pdf/uksi_20091804_en.pdf which came into force on 1st October 2009. These regulations applied the remaining parts of the Companies Act 2006, which had not come into force by virtue of regulations (d), (e), (f) and (g) below, to LLPs.
(b) the Limited Liability Partnerships Regulations 2001 (SI 2001/1090). These regulations apply certain parts of the Companies Act 1985, the Director Disqualification Act 1986 and the Insolvency Act 1986 to LLPs together with default rules for LLPs which govern the operation of LLPs subject to any LLP agreement making provision to the contrary.
(c) the Limited Liability Partnerships (Scotland) Regulations 2001 (SSI 2001/128). These regulations applies sections of the Companies Act 1985 and Insolvency Act 1986 to LLPs as well as making other amendments to Scottish legislation to take account of the new corporate entity of LLP.

(d) the Limited liability Partnerships (Accounts and Audit) (Application of Companies Act 2006) Regulations 2008 (SI 2008/1911). These regulations apply Parts 15, 16 and 42 of the 2006 Act on accounts and audit to LLPs with effect from 1st October 2008;
(e) the Large and Medium-sized Limited Liability Partnerships (Accounts) Regulations 2008 (SI 2008/1913). These regulations specify the form and content of accounts for large and medium-sized LLPs with effect from 1st October 2008;

(f) the Small Limited Liability Partnerships (Accounts) Regulations 2008 (SI 2008/1912). These regulations specify the form and content of accounts for small LLPs with effect from 1st October 2008; and
(g) the Companies (Late Filing Penalties) and Limited Liability Partnerships (Filing Periods and Late Filing Penalties) Regulations 2008 (SI 2008/497). These regulations provide for the penalties LLPs must pay to the Registrar of Companies if they deliver their annual accounts and reports late under Part 15 of the Companies Act 2006 with effect from 6th April 2008.

The bulk of the legislation is not contained in the LLP Act 2000, but rather in the regulations. Separate Scottish regulations were required given that insolvency in Scotland is part of the Scottish Parliament’s competence. The enactment of the regulations was controversial. A ‘cross-reference’ approach was adopted i.e. the regulations simply indicate the section numbers of parts of other legislation which apply to LLPs (as amended) without setting out the terms of those sections in full. Thus the regulations amend and apply parts of e.g. the Companies Act 2006 and the Insolvency Act 1986 to LLPs. As a result, the regulations make little sense read in isolation. The full text of the amended sections is set out in Armour, D, Tolley’s Limited Liability Partnerships: A Guide to the New Legislation (Tolley, 2001).

You may find that the explanatory notes at the end of each statutory instrument useful – see for example:
http://www.legislation.hmso.gov.uk/si/si2001/20011090.htm
and
http://www.scotland-legislation.hmso.gov.uk/legislation/scotland/ssi2001/20010128.htm.

See also useful articles by David Bennett, (2001) 46 JLSS 23 and Charlotte Villiers, 2001 SLPQ 112.
[Good sources where you cannot find answer in the textbook].

5
Q

Does an LLP have a separate legal personality?

A

The LLP has a separate legal personality distinct from its members (LLP Act, s 1).
LLP is a somewhat hybrid between partnership and company law.

6
Q

What are the requirements of an LLP which have been borrowed from Company law?

A

Certain requirements have been borrowed from company law:
⁃ Under s 2 there must be an incorporation document[ NB this is different from the partnership agreement - this does not have to be registered.] subscribed by two or more people ‘associated for carrying on a lawful business with a view to profit’. The partnership cannot start trading until there is a certificate of incorporation.
⁃ The document must state:
⁃ The name of the partnership
⁃ The registered office
⁃ Those members designated to receive notices about the partnership
- The required particulars of the members (name, address, etc.)
(This information has to be made public in this incorporation document).

This section also says that the law in relation to partnerships will not apply unless the 2003 Act so expressly provides.??

However, there are elements which apply from partnership by virtue of the provisions of the LLP Act (the Act makes these characteristics available).

7
Q

What are the rules from partnership law?

A

*See Section 5

The rules from partnership law, dealing with the internal management of the partnership, provide for much flexibility and allow the members to determine their internal organisation. This is not because partnership law applies but because some features of partnership apply to LLPs by virtue of the LLP Act.

**Must be clear in exam if it is a partnership or an LLP - partnerships do not apply unless there is particular provision in the LLP Act providing so. The Source of the law is the 2000 Act together with cases which have since looked at provisions of the 2000 Act.

8
Q

How does an LLP regulate itself internally?

A

In the absence of agreement between the members, regulations may be made which will govern their relationship. It is essentially up to the LLP how they internally deal with one another - what the rights and obligations are is decided by the members

If there is no agreement as to how the LLP will organise itself internally, then regulations govern this:

  1. Reg 7 of the Limited Liability Partnerships Regulations 2001 (SI 2001/1090) sets out default rules that apply to LLPs in the absence of express agreement to the contrary.
    NB: These rules are similar to the s24 default rules for a partnership under the 1890 Act.
    1. Reg 8 of the Limited Liability Partnerships Regulations 2001 (SI 2001/1090) - say that no majority of the members can expel any members unless a power to do so has been conferred by express agreement on the members (similar to partnership).
9
Q

Eaton v Caulfield [2011] EWHC 173

A

**Case on expulsion of LLPs

Suggests that the court will not easily come to the view that an expulsion will exist in the absence of a written agreement which includes provision to this effect. Without this, it will be difficult to prove that this power exists by oral agreement.

10
Q

F & C Alternative Investment (Holdings) Ltd v Barthelemy (Unreported) [2011]

A

**Case on fiduciary duties of LLP members

⁃ This English case concludes that the members of an LLP don’t actually owe fiduciary duties to each other - fiduciary duties must be imposed by contract (LLP agreement).

  • If you are setting up an LLP must make express provision for fiduciary duties in the contract.
  • However some rules in reg 7 appear to be fiduciary in nature. It is not an over-arching fiduciary duty however and only appear in the form given in reg 7.
  • Appealed on costs only to CA, [2012] EWCA Civ 843.

Relevant discussion at para 207 of [2011] EWHC 1731 (Ch) onwards. It suggests that members of an LLP owe no fiduciary duties to one another, and any such duties would have to be imposed by contract.

NB: s 24 does not apply to LLPs!

11
Q

What is a Designated member OFTEN CONFUSION IN EXAM?

A

A designated member is covered in s 8. A designated member, in addition to all his other duties as a member, bears additional administrative burdens on behalf of the LLP.

⁃ S/he is responsible for filing annual accounts and, for example, for advising the Registrar of Companies of, e.g. changes in membership or in addresses of members.
⁃ At least two members must be designated members at any given time. Failure to nominate two designated members means that all members are designated members in terms of s8 of the 2000 Act.

12
Q

What are the rules on LLP members acting as agents for the LLP?

A

There is general rule that every member is an agent of the LLP (s 6) (so ideas of authority and different types of authority still apply as they would in an 1890 partnership).

But an LLP is not bound by anything done by a member if :

(a) the member has no authority to act for the LLP in doing the act in question, and
(b) the third party knows that the member has no authority or does not know or believe him to be a member of the LLP.

This is the same as the situation with partners of a partnership (see above).

13
Q

What happens if members fail to do something which causes lost?

A

In contrast with the 1907 Act, there can be full limited liability in an LLP under this Act.

It will be recalled that, where a partner has been negligent in carrying out work (using the term ‘partner’ for the partner of an 1890 Act partnership) then the client (“C”) has different possible courses of action to obtain compensation for his loss:

  1. C can raise an action primarily against the firm, but (s10 partnership Act?)
  2. Also against the individual partners who are jointly and severally liable.
  3. Alternatively, C can raise an action in delict against the individual partner who provided C with negligent advice.

The situation with an LLP differs. The limited liability partnership is a separate legal entity and C’s contract lies with that entity alone. C may raise an action against the LLP. There is no joint and several liability, and C cannot sue the individual partners[ Thus the liability of each individual partner is his capital contribution - unless you are the party at fault, under delict.]. The delictual route remains available as an alternative against the member who negligently gave the advice.

Clearly, C will prefer to sue either the LLP or the firm. These bodies are more likely to have sufficient funds and assets to bear the loss.

14
Q

What determines whether a delictual action will be successful?

A

Whether a delictual action will be successful will depend on whether personal responsibility has been assumed for the advice, which has then been relied upon.

Williams v Natural Life Health Foods Ltd and Mistlin [1998]

15
Q

Williams v Natural Life Health Foods Ltd and Mistlin [1998]

A

??

16
Q

What governs the insolvency of an LLP?

A

S.14 simply allows regulations to be made to provide for what is to happen on the insolvency of an LLP. [LLP Act, s.14 and Insolvency Act 1986, s.50–72 as amended by the Scottish Regulations, reg. 4(1) and Sch. 2.]

LLP Act, s.14. Provisions of the Insolvency Act 1986 are applied to LLPs with modifications by the Limited Liability Partnerships (Scotland) Regulations 2001, reg. 4(1) and sch. 2 and the Limited Liability Partnership Regulations 2001, reg 5 and sch. 3 and 4

17
Q

What do the provisions on insolvency say?

A

These provisions say that if the LLP is wound up, the present and past members who have agreed to be liable to contribute to the assets of the LLP in the event of liquidation will be liable to the extent so agreed. [S.74 of the Insolvency 1986 Act, reg 5 of the Limited Liability Partnership Regulations 2001 reg 5, with the modification set out in sched 3].

18
Q

Can an individual be liable for the debts of an LLP?

A

However[ Ie despite the fact that partners have limited liability.], an individual member may become liable for the debts of the LLP when it is wound up under what has become known as the “claw-back’’ provisions:
A member of an LLP, or any person who has been a member within the period of two years prior to the winding up of the LLP, may be liable to contribute towards claims of creditors if he withdrew any property of the LLP during that period.

It is quite a wide provision as the form of the withdrawal makes little difference - the provisions apply to withdrawals in the form of shares of profits, salaries, repayment or payment of interest on a loan to the LLP or any other withdrawal. “Property’’ is also widely defined as any asset of the LLP - Insolvency Act 1986, s.214A, particularly s214A(2)(a), as amended by the Scottish Regulations, reg. 4(2) and Sch. 3.

19
Q

How can you achieve a “claw-back”?

A

To achieve such a “claw-back’’, a liquidator, where the LLP is in insolvent liquidation, must apply to the court for an order.

20
Q

What must the liquidator prove to achieve a “claw-back”?

A

The liquidator must prove that, at the time of the withdrawal, the member knew or had reasonable grounds to believe that the LLP was unable to pay its debts or knew or had reasonable grounds to believe that the LLP would become unable to meet its debts as a result of that withdrawal taken together with any other withdrawals made (or contemplated) at the same time.

Therefore, it is not sufficient for the member simply to check that the withdrawal that s/he is making does not place the LLP in the position of being unable to pay its debts. That member must also check whether any other members have made relevant withdrawals at the same time as his which, collectively, would have this effect on the LLP - Insolvency Act 1986, s.123(1)(c) as amended by the Scottish Regulations, reg. 4(2) and Sch. 3.