Partnerships - Limited Liability Partnerships (LLP)

Question 1

What is an LLP?

Answer 1

Hybrid business vehicle combining features of both company (separate legal entity with limited liability) and a partnership (flexible structure and tax transparency)

Question 2

How is an LLP formed?

Answer 2

Two or more persons (including companies) associated to carry on a lawful business with a view to profit may incorporate an LLP

Question 3

What form is used to register an LLP and what certificate is issued on incorporatione?

Answer 3

• Form LL IN01
• Certificate of Incorporation, which is conclusive evidence of valid formation

Question 4

What is the minimum number of members in an LLP?

Answer 4

At least 2 formally appointed members are required at all times

Question 5

Who are designated members?

Answer 5

Members with additional responsibilities eg. filing accounts, signing statements and acting during winding up

Question 6

What filings must an LLP make at CH?

Answer 6

• Changes of name, office or email
• Changes in membership
• Creation of charges
• Annual confirmation statement
• Annual accounts

Question 7

What internal records must an LLP maintain?

Answer 7

• Register of members
• Register of people with significant control

Question 8

Who can be a member of an LLP?

Answer 8

Any person (individual or company) who subscribes on incorporation or later joins by agreement

Question 9

How does a person cease to be a member?

Answer 9

Through death, agreement, notice to others, or dissolution (if corporate member)

Question 10

Is a Member’s Agreement mandatory?

Answer 10

No, but its strongly recommended. If absent, default rules under the 2001 Regulations apply

Question 11

What are the key default provisions under Regs 7 and 8?

Answer 11

1. Equal share in capital and profits
2. LLP indemnifies members for liabilities in proper conduct
3. Every member may manage
4. No right to salary
5. New members require unanimous consent
6. Ordinary decisions by majority; change of business need unanimity
7. Records available for inspection
8. Duty to disclose LLP related information
9. Duty to account for profits from competing businesses
10. Duty to account for benefits from LLP transactions
11. No power to expel a member unless expressly agreed

Question 12

Are LLPs subject to corporation tax?

Answer 12

No - LLPs are tax transparent - members are taxed individually on their share of income and gains

Question 13

What taxes apply to LLP members?

Answer 13

• Income tax (on profits)
• Capital Gains Tax (on their share of gains on LLP assets

Question 14

Who registers for VAT - the LLP or the Member?

Answer 14

The LLP registers for VAT, not individual members

Question 15

Are LLPs eligible for partnership tax reliefs?

Answer 15

Yes - Reliefs such as interest relief, loss set-off, and capital gains reliefs may apply

Question 16

What company-like features do LLPs have?

Answer 16

• Separate legal personality
• Limited liability
• Filing of accounts
• Ability to create floating charges
• Application of corporate insolvency law

Question 17

What partnership-like features do LLPs have?

Answer 17

• No share capital
• Flexible internal structure
• Members may both own and manage
• Tax transparency
• Similar reliance on private agreements

Question 18

What is the ‘clawback rule’ for LLPs under Insolvency Act?

Answer 18

Certain withdrawals by members within 2 years of winding up may be reclaimed to repay creditors