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Limited Liability Partnership and LLP Agreements

What is an LLP?

An LLP (or limited liability partnership) is a hybrid.  Think of it like a lovechild between a company and a traditional partnership.  It combines the benefits of limited liability (like a limited company), but with the organisational flexibility and tax status of a partnership structure.    

What is limited liability?

An LLP is a separate person in the eyes of the law.  This means that it is the LLP itself, and not its members (i.e. owners), that will enter into contracts and own assets in its name.  That can be a good thing for the members, as if the business of the LLP fails the liability of the members is limited (usually to their capital contribution – much in the same way that a shareholder’s liability in respect of a company is limited to the price paid for shares).

Do I need an LLP agreement?

Most LLP’s do have an LLP agreement regulating the relationship between its members.  If you do not have an LLP agreement, or if an LLP agreement is badly drafted, you will be subject to the “standard” rules contained in the law governing LLP’s.  In most cases the “standard” rules will not be acceptable or appropriate for you.

LLP agreements typically cover a number of points and issues, including:

  • The type of business operated by the LLP
  • How much capital (i.e. cash) the members are required to put into the LLP
  • How profits and losses of the LLP are shared between the members
  • Financial matters (accounting policies and banking arrangements)
  • Incoming new members
  • Outgoing members (both retirement and getting rid of “rogue” members)
  • The rights and duties placed on the members of the LLP
  • Day to day management of the LLP
  • Decision making (certain decisions may be made by a majority of the members, whereas other important decisions may need all the members of the LLP to agree)
  • Resolving disputes between the members of the LLP
  • Winding up the LLP

What type of businesses use LLP’s?

LLP’s can be used for all types of businesses ranging from small family businesses (e.g. trading businesses and farms) right through to professional partnerships (e.g. dentists or accountants), joint ventures and tax efficient investment vehicles (e.g. for property investment). 

LLP v general partnership

  • The members of an LLP enjoy the benefit of limited liability.  The partners in a general partnership do not – they have joint and several personal liability.
  • An LLP is a separate person so common technical legal issues with partnerships, such as technical dissolution when partners retire from a general partnership, are avoided.
  • There is no restriction on the type of security an LLP can create (e.g. in favour of a bank).
  • LLP’s have to file annual accounts at Companies House (like limited companies).  General partnerships are more private than LLP’s in this sense, as general partnerships can keep their accounts private.

LLP v company

  • The internal documents governing the LLP (including the LLP agreement) are private documents.  A number of documents governing a limited company have to be filed at Companies House and so are public documents.
  • LLP’s have greater organisational flexibility than limited companies.
  • LLP’s are tax transparent – members of the LLP are taxed like partners in a general partnership and the LLP is not taxed.  A company has to pay corporation tax on its profits and its shareholders will be taxed separately on any dividends taken out of the company.

Advice about LLPs

If you are considering an LLP and want to make sure it’s right for you, the specialist corporate lawyers at Bray & Bray are experts in helping businesses to make the right decisions.  We can also advise you of the tax implications that you would need to discuss with your accountant. 

Speak to a corporate law solicitor

The corporate law solicitors at Bray & Bray are based at our head office in Leicester, but are always happy to arrange to meet at one of our other office locations within Leicestershire.  Contact us with any questions you may have or call your nearest office to arrange an appointment:

Leicester call us on 0116 254 8871.

Hinckley call us on 01455 639 900.

Market Harborough call us on 01858 467 181.

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