The Basics of the Limited Liability Partnership (LLP)

or information on: The Basics of the Limited Company (LTD)

Glossary

The limited liability partnership and its benefits

LLP Registration requirements

Who can be an LLP

The company registration agent and your LLP

What Next...?
How Stanley Davis can help

LLP v Limited Company - A Comparison

Appendix:
A Brief list of controlled words

GLOSSARY

Act means the Limited Liability Partnership Act 2000

Agent means the person or company who assists with the registration of the LLP

Agreement means the document containing the objects and regulations of the LLP and to which the members have agreed to be bound

Audit means a statutory review of the LLP's accounts

Capital means the capital the members agree to contribute to the Partnership

Charge means a debt secured by the assets of the company

Incorporation means registration or formation

LLP means Limited Liability Partnership

Registration means incorporation or formation

Passing Off means attempting to 'steal' the business of another company or LLP by using a similar name

The Limited Liability Partnership and its benefits

Through the process of registration an LLP becomes a legal person distinct from its members. It can therefore :

enter into contracts in its own name
sue and be sued in its own name
buy, sell and lease property in its own name

The LLP is a hybrid between a limited company and an ordinary partnership offering limited liability to members whilst retaining the flexibility of a partnership and transparency for tax purposes.
(Refer also to 'The Basics of the Limited Company')

Incorporation as a limited liability partnership brings with it a number of advantages:

Limited liability
The liability of the members is limited to the amount the members agree to contribute on the winding up of the LLP. The regulations provide no guide.

Perpetual succession
An LLP ceases to exist only if it is formally wound up or struck from the Companies Register by Companies House. Members can leave the LLP for whatever reason and the LLP continues.

Protection of the name
Incorporation ensures that no other LLP or company can be registered with the same name.

Governing structure
The Agreement of the LLP should clearly set out the powers and regulations with which the LLP and the members must comply. The agreement is not mandatory.

Ease of Transfer in and out
There is no penalty should the business cease to operate under the LLP.

Borrowing provision
An LLP is permitted to arrange for borrowings by way of fixed and floating charges over its assets. Status The profile of an unincorporated business is enhanced by going through the incorporation procedure. Registration increases the perceived credibility of the business in the market place.

Flexibility of structure
There is no need for an Agreement or a constitution. There is no change to the taxation structure of the members as the LLP is not subject to corporation tax during its life.

Credit rating
Incorporation as an LLP enables the business to obtain a credit rating which can provide comfort to clients and suppliers.

Recruitment
For professional firms who adopt the LLP, high risk, high calibre partners can be attracted who are not subject to any retrospective or other negligence claims made on other partners.

Halfway House
Unincorporated businesses using the LLP can buy into limited liability without changing their tax or governing structure.

Registration Requirements

For UK LLP's the following information and documents are required:

NAME
An LLP name must be chosen with care and may not conflict with an existing name on the register. The Registrar may not register a name which is the same as an existing name on the index, or which is offensive or which would constitute a criminal offence (S26 Companies Act 1985).
If the proposed name implies a connection with government or if the name contains a controlled word, it may only be registered with the approval of the Secretary of State.
Controlled words are words deemed sensitive by the Secretary of State and require qualification before agreement for use. A brief list of controlled words can be found here - Controlled words.
Inclusion of the @ symbol or .com or co.uk in a company name will be enough to secure registration but these sort of differences are deemed to be 'weak qualifications' and may result in the company being instructed to change its name.
The Secretary of State may order an LLP to change its name within twelve months of its registration if an objection is made by an existing LLP or company on the index and if in his opinion it is 'too like' a name already on the index. He is unlikely to take action unless an objection is raised. (S28 Companies Act 1985).
It is open to any trader, business or other company to take a 'passing off action against the LLP if it feels that its rights are infringed by the new LLP. In addition, owners of trademarks may be able to take action if the LLP name is similar to their mark.
Before filing an application to form an LLP, it is essential to search the Companies House register of names. A trademark search and an internet domain name check are additional safeguards.
It is never possible to say for certain that a name is completely safe at the time of applying for registration. Registration is complete when the certificate of incorporation is produced by Companies House. The certificate of incorporation is the birth certificate of the LLP and shows the name of the LLP, the date of incorporation and the LLP registration number.

POWERS & REGULATIONS
An Agreement is recommended setting out the powers of the LLP and the rules regulating the actions of the members of the LLP. The agreement is not mandatory and not required to be filed at Companies House.
The Agreement should contain at least the following :-

the name of the company;
whether the registered office is to be situated in England or Wales or both;
the activities of the LLP;
the method for appointing new members;
the system for removing problem members;
the system for dealing with deceased members
how the capital cost is reimbursed when a member dies or leaves the LLP;
when and how profits are divided;
how much is contributed to the debts of the LLP on winding up;
names of members on incorporation;
minimum and maximum number of members;
date of commencement of the agreement;
outline of the duties of members;
restrictions on members in respect of competition and confidentiality;
detailed provisions for outgoing members and restrictions in respect of anti competitive behaviour;
insurance and pensions;
notice provisions to members;
procedure at meetings;
votes of members;

Without such an Agreement set in writing default provisions apply which may not be suitable. Without a written Agreement members may fall into disagreement. The Agreement provided in the Stanley Davis Group LLP format has been settled by Counsel and provides a comprehensive start for any LLP to use or to modify and enhance.

CAPITAL
Every LLP must have two equity members. They each agree in accordance with the written Agreement to contribute an amount to the LLP. This contribution determines the level of ownership of the LLP. There are no default provisions in this regard and where there is no agreement members will need to discuss and agree. The capital would normally be signified in pounds sterling. However, foreign currencies can be used, or a mix of currencies, including the Euro. There is no guidance in the legislation suggesting the level of capital contribution. Each LLP must decide what are its financial needs and arrange for this to be spread across the members.

OFFICERS
Management of the LLP is the responsibility of the members of which there must be at least two. Details of the first members must be disclosed to Companies House on statutory form LLP2, together with any changes thereafter. The members may be corporate and resident anywhere in the world. The members are not only the managers of the LLP but also the owners.

DESIGNATED MEMBERS
At least two of the members must be notified to Companies House as the designated members. These designated members are responsible for the compliance of the company and act rather like the secretary of a limited company. If the LLP does not notify Companies House as to who are the designated members, all members are deemed to be designated. The compliance responsibilities include the appointment of auditors, acting as signatory to the accounts, making returns to Companies House.

REGISTERED OFFICE
Every UK LLP requires a registered office in either England or Wales. It is not possible to change from one country to another, however, England and Wales are generally treated as one country. The registered office of the LLP must not be confused with its trading address(es). An incorporation fee is payable to Companies House on application for registration.

WHO CAN BE AN LLP?

The LLP Act 2002 says 'two or more persons associated for carrying on lawful business with a view to profit...1. S2(1)(a) LLP Act 2000.
This means that charities may not use the LLP format and this extends to other philanthropic concerns like youth centres, sports clubs, associations etc.
This also means that an LLP may not be incorporated and remain dormant as dormant status would not comply with the requirement of the act to 'carry on lawful business with a view to profit'. This does not, however, mean the LLP's cannot be dormant for a while or fall dormant.
The business of the LLP may commence at the year end of the existing business or partnership which may mean a delay after incorporation and before trading. It may coincide with the retirement of older partners and the influx of new.

The company registration agent and your LLP

A company registration agent will deal with the formalities surrounding your LLP formation and will supply you with the necessary statutory forms and advice in relation thereto.
After the name check to ensure availability for registration, statutory form LLP2 will require completion and lodging at Companies House. The LLP2 contains the details of the members, designated members and registered office.
The information cannot be submitted electronically unlike its brother the limited company.
Pursuant to S.2 of the Act the company registration agent will submit the incorporation documents to Companies House applying for registration of your LLP. Companies House receives all applications for registration and is the body responsible for these functions: the incorporation, re-registration and striking off of companies and LLP's and the registration of documents required to be delivered under the Act, the Insolvency Act and related legislation, and the provision of company and LLP information to the public. The main office of Companies House is in Cardiff.
A Certificate of Incorporation is produced by Companies House within a few days of the application, or sooner on payment of a premium fee.

Readymade LLP's are not permitted by the Act S1 (2) LLP Act 2000.

When the LLP is incorporated it is normal practice for the company registration agent to supply, in addition to the Certificate of Incorporation at least the following items :-

One set of books including statutory and non-statutory registers, incorporating the:

These statutory and non statutory registers are used to record information in respect of the names and addresses of the members and details of the capital contributions. The Register of Charges and Debentures provides a diary of secured borrowings.
The statutory books must be kept up to date. The company registration agent or the accountant, solicitor or professional advisor may take on this responsibility on the LLP's behalf. Financial penalties under the Act are imposed on LLP's and its members for non-compliance in this regard. It is the members of the LLP who will be penalised for non-compliance and not the accountant, solicitor or professional advisor unless they are themselves also the members of the LLP.
The agent will also generally supply several copies of the Agreement for distribution to the bank, accountants to the LLP, members and other interested parties.

What Next...?

POST-INCORPORATION MATTERS
Once the LLP is incorporated it is a legal entity in its own right. As such it acquires certain privileges and confers many obligations on the members. The members are responsible for the management of the LLP and are bound to comply with the law. These notes are a brief overview of some important matters requiring attention.

APPOINTMENT OF BANKERS
Before a bank account can be opened, the bank will normally require sight of the certificate of incorporation and a copy of the Agreement. A formal resolution must be passed to appoint the bankers and the relevant wording is normally contained on the bank mandate form.

APPOINTMENT OF AUDITORS
An LLP must have its annual accounts audited by a registered auditor although it may be possible to be exempt from the audit requirement if :-

it is dormant, or
if it has a turnover of less than £5.6 million.
The auditor, if required, need not be appointed until after the year end.

ACCOUNTING REFERENCE DATE
The LLP's accounting reference date will be the last date of the month in which the anniversary of its incorporation falls. The date may be changed by notifying Companies House on form LLP 225. An LLP's first accounts must cover a period not exceeding eighteen months. The accounting reference period must start on the day of incorporation or the day immediately following the end of the previous accounting period. It must end on the accounting reference date or a date up to seven days either side.

ACCOUNTS
Accounts are required for all limited, unlimited companies and LLP's, whether they are trading or not. The accounts must be approved by the members and signed on behalf of the members by the designated members. All limited companies and LLP's must deliver a set of accounts to the Registrar of Companies. Provisions exist in the Act for smaller companies and LLP's to be exempt from filing full accounts. Some LLP's need not file audited accounts - see 'Appointment of Auditors'. The first set of accounts must be filed within 22 months of incorporation and subsequently within 10 months of the year end, subject to extensions being possible for LLP's with overseas interests.

ANNUAL RETURN
Each year an LLP must prepare and submit to Companies House a summary of its current members together with the filing fee. The first annual return will normally be on the anniversary of incorporation. After incorporation and in time for the filing of the Annual Return a reminder Annual Return will be sent by Companies House which will contain the information taken from the public record. This must be checked for accuracy, signed by a designated member and returned to Companies House within 28 days of the date of the return.

PENALTIES
Failure to deliver an annual return or accounts to the Registrar within the statutory time limit can render the members liable to prosecution and a fine, in a civil action. In addition, the Registrar imposes automatic penalties on LLP's who deliver their accounts late.
The following penalties are payable on a one day late basis with no provision for negotiation.

Delay

Public

Private

LLP

Accounts up to 3 months late

£500

£100

£100

Accounts up to 6 months late

£1000

£250

£250

Accounts up to 12 months late

£2000

£500

£500

Accounts more than 12 months late

£5000

£1000

£1000

If no annual return or accounts are filed the LLP may be struck off the Companies Register and dissolved. The assets of the LLP will subsequently become the property of the Crown, the Duchy of Lancaster or the Duchy of Cornwall and bank accounts will be frozen. Restoration to the Companies Register is possible but this involves material expense in legal costs. The Registrar of Companies has a very efficient monitoring system and it is therefore important that statutory matters are dealt with promptly.

CORPORATION TAX The LLP is transparent for tax purposes and therefore no corporation tax is payable. Only when the LLP is being wound up might gains accrue to the LLP and not the members.

INCOME TAX Members of an LLP are subject to income tax at the current level and dependant on income in the same was as in ordinary partnerships or unincorporated businesses.

VAT REGISTRATION The current threshold on application for registration is £60,000. The LLP will normally make application to the Customs & Excise Office local to the Registered Office of the LLP.

CHARGES An LLP must register a charge, mortgage or, debenture within 21 days of its creation.

CHANGES IN THE MEMBERS OF THE LLP Appointments, resignations and changes in particulars (e.g. home addresses of the members and designated members) must be notified to the Registrar on the relevant form LLP 288 within 14 days of the event.

CHANGES IN REGISTERED OFFICE A change in the registered office must be notified to the Registrar on form LLP 287. The change takes effect upon the notice being registered by the Registrar, but until 14 days after it has been registered, documents may continue to be validly served at the previous registered office address.

LETTERHEADS The following items are required, by section 351 Companies Act 1985, on all business letters and order forms:-

full name of the registered LLP even where the LLP uses a trading name
place of registration (eg. ' Registered in England and Wales')
registration number as shown on the certificate of incorporation address of the registered office
if members names are printed on the letterhead, all members must be included

How can Stanley Davis Group help?
Stanley Davis Group is a national company registration agency with offices in Leeds, London, Manchester and Nottingham.
We register corporate structures for a huge variety of purposes on a daily basis.
Stanley Davis Group have the systems and knowledge to enable swift and extensive checking and advice on proposed company and LLP names to be carried out. We maintain precedent articles, contracts and agreements and have the technical know-how to enable your new company or LLP to be incorporated or your corporate reconstruction to be carried out.
Our Memorandum and Articles for a private company limited by shares have been settled by counsel and carry the accredited 'Crystal Mark' for Plain English enabling a clearer understanding of the constitution of the company. Our Agreement for an LLP has been settled by Counsel.

Readymade ('off the shelf') companies, sameday incorporations, specialist companies and company
re-registrations and restructuring are all within the remit of Stanley Davis Group.

We deal with post incorporation matters from the first meetings to exit provisions for the key members and we are familiar with the prevailing company and LLP legislation and abreast of proposed new legislation.
We are your leaders in the company formation and LLP registration field and are ready and waiting to take your instructions.

LLP v LTD Company Comparison

Limited Company

Limited Liability Partnership

REGULATIONS

Companies Act 1985

LLP Act 2000

LIABILITY

Limited to amounts unpaid on shares

Limited to amount of capital agreed to be contributed in the event of winding up

CONSTITUTION

Memorandum and articles of association govern the power to act and form the rules of the company- must be filed at Companies House

STATUS

Has a separate legal personality-can own land, sue, be sued etc in its own name

Has a separate legal personality-can own land, sue, be sued etc in its own name

CAPITAL

The minimum share capital of a company is 1 p (public company- £50,000) and for a private company, only one share needs to be issued (private companies limited by shares). Shares may be divided into different classes and different denominations with varying rights.

No regulations on capital.Capital is not divided into shares

PROFITS

May pay salaries and dividends from distributable reserves

Members may draw on their profits within the terms of their agreement

TAKING OUT CAPITAL

Not generally permitted although companies may be able to purchase or redeem their own shares

Depends on agreement

MANAGEMENT

Private company requires only one director (two for a public company). Directors do not have to be members. Directors can be corporations

At least two equity members needed, who carry out the management function. Members can be corporations

COMPANY SECRETARY

A Company Secretary is required (a public company secretary must be qualified to act)

No Secretary needed Designated members carry out the compliancefunction

MEMBERS

Companies limited by shares or guarantee require only one member. Public and unlimited companies require two

Requires at least two members

DECISIONS

The Companies Act specifies majorities required for many resolutions

LLP Act sets out some majorities, otherwise unanimous consent required for most decisions unless agreement specifies otherwise

MEETINGS

The Companies Act sets out the requirements for meetings and requires an AGM (although private companies may elect not to hold one)

No regulations on meetings

INVESTMENT

Outside investors may contribute share capital (and take an equity stake without becoming a director) or loans

Outside investors can only contribute loan capital. Only a member can take equity stake

BORROWINGS

Debentures and fixed and floating charges

Same

WRITTEN RESOLUTIONS

Members may pass resolutions by means of written resolutions

Depends on members' agreement

DISLOSURE

Accounts must be filed at Companies House. Annual return, Notice of change of director/secretary/registered office;mortgages;and various other returns

Accounts must be filed at Companies House. Annual return, Notice of change of director/secretary/registered office;mortgages;and various other returns

AUDITORS

Need not always have auditors

Need not always have auditors

TAXATION

Corporation tax applies

Members taxed as individuals;no corporation tax

REGISTRATION AS CHARITY

Possible for a company limited by guarantee

Not possible

A Brief List of Company Naming Controlled Words

Abortion
Anzac
Apothecary
Architect
Association
Assurance
Authority
Benevolent
Board
British
Broker
Building Society
Chamber of Commerce
Chamber of Industry
Chamber of Trade
Charitable
Charity
Charter
Chartered
Chemist
Chemistry
Chiropodist
Contact Lens
Council
Co-operative
Dental
Dental Practitioner
Dental Surgeon
Dentist
Dentistry
Deposit
Dietician
Dispensing optician
District nurse
Drug
Druggist
Duke
England

English
Enrolled Optician
European
Federation
Foundation
Friendly Society
Fund
Giro
Great Britain
Group
Institute
Institution
Health Centre
Health Service
Health Visitor
His/Her Majesty Holdings
Industrial & Provident Society
Insurance
International
Ireland
Irish
King
Medical
Laboratory
Technician
Midwife
Midwifery
National
Nurse
Nursing
Occupational Therapist
Ophthalmic Optician
Optician
Optometrist
Orthoptist
Patent
Patentee
Pharmaceutical

Pharmaceutist
Pharmacist
Pharmacy
Physiotherapist
Police
Polytechnic
Post Office
Pregnancy
Prince
Princess
Queen
Radiographer
Red Cross
Register
Registered
Registered Optician
Remedial Gymnast
Re-Assurance Broker
Re-Insurance Broker
Royal
Royalty
Scotland
Scottish
Sheffield
Society
Special School
Stock Exchange
Termination
Trade Union
Training and Enterprise
Trust
University
United Kingdom
Veterinary Surgeon
Wales
Welsh
Windsor

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