This is our most popular package with UK residents, and includes: The filing and registration of your LLP The submission of forms detailing the LLP's executive members (partners) Incorporation forms (Form LLP2) do not require the signature of a Notary Public The formation of your LLP within 4-6 working days PPayment of legal and initiation fees The appointment of your own candidates as members for the LLP (a minimum of two people are required) The following documents will be posted to you (these documents will be sent via Royal Mail): The original laminated Certificate of Registration A hard bound copy of the Combined LLP Register A hard bound copy of the Partnership Agreement The Minutes of the First Members' Meeting Membership Certificates and completed Members' Register
Premier Package
£ 175.00
Renewal fees from £50.00
This is our most popular package with EU residents, and includes: The filing and registration of your LLP The submission of forms detailing the LLP's executive members (partners) Incorporation forms (Form LLP2) do not require the signature of a Notary Public The formation of your LLP within 4-6 working days Payment of legal and initiation fees The appointment of your own candidates as members for the LLP (a minimum of two people are required) A A registered office address for 12 months, provided by Coddan An application form for the following year's renewal of the Registered Office Address service (£50.00) Annual Return and Annual Account reminder The following documents will be posted to you (these documents will be sent via Royal Mail): The original laminated Certificate of Registration A hard bound copy of the Combined LLP Register A hard bound copy of the Partnership Agreement The Minutes of the First Members' Meeting Membership Certificates and completed Members' Register
Deluxe Package
£ 425.00
Renewal fees from £300.00
This is our most popular package with overseas residents, and includes: The formation of your LLP within 4-6 working days Payment of legal and initiation fees A A registered office address for 12 months, provided by Coddan An application form for the following year's renewal of the Registered Office Address service (£50.00) A LLP nominee designated members service for 1 year The names of the nominee designated LLP members will appear on the public record Annual Return and Annual Account reminder The following documents will be posted to you (these documents will be sent via Royal Mail): The original laminated Certificate of Registration A hard bound copy of the Combined LLP Register A hard bound copy of the Partnership Agreement The Minutes of the First Members' Meeting Membership Certificates and completed Members' Register A General Power of Attorney signed by the Nominees A pre-signed, undated letter of resignation from the Nominee Members An indemnity Letter for the General Power of Attorney A nominee service agreement which provides for the indemnification of the nominees
LLP Creation Checklist: Legal Requirements
Setting-Up LLP: You have to register with Companies House, the method is similar to registering a company. LLP subscribers may be residents outside the UK. A LLP must exist for business purposes: it is a for-profit legal form. Membership: the only members are the partners. Partners must be individuals or corporate bodies. The minimum number of partners are TWO. New partners are normally admitted by the existing partners. Partners can be of any nationality. The business is controlled by the designated members. A LLP can hold property. A LLP can borrow money in its own name. An LLP will be required to appoint at least 2 designated members. LLPs that do not carry on business as a trade or profession such as an investment company will be subject to corporation tax. The LLP is required to have a registered office in the UK.
UK LLP FORMATION SERVICE. FORMING AN LLP IN THE UNITED KINGDOM. DEFINITION OF LIMITED LIABILITY PARTNERSHIP & LIMITED LIABILITY PARTNERSHIP BENEFITS. WHAT IS THE DIFFERENCE BETWEEN AN LLC AND AN LLP?
Online LLP Formation & Registration LLP Limited Liability Partnership in England: welcome to online Limited Liability Partnership - UK LLP formation agent. Whether you are suited to being your own boss and can start up on minimal resources are questions that can only be fully answered once you take the plunge.
But the below sections will give you the best possible idea as to what's involved in going it alone, where you can find help and how others have fared when starting up a business. We recommend reviewing this site in its entirety, so that you are knowledgeable of the UK jurisdiction and the powers granted to British LLPs. We will guide you through the process of registering your limited liability partnership and establishing your registered identity.
What does LLP stand for? What is the difference between an LLC and LLP? The LLP must have at least two members in the partnership, which can be resident anywhere in the world. The members can be natural persons or corporate bodies. A Limited Liability Partnership or LLP is a relatively new creation that operates much like a limited partnership, but allows the members of the LLP to take an active role in the business of the partnership, without exposing them to personal liability for others' acts except to the extent of their investment in the LLP. All profits in a Limited Liability Partnership (LLP) are split between the members. The tax liability falls on the individual members, not the LLP itself. Most members are likely to be self-employed, so all income should be declared via self-assessment. If an LLP member is another business, they will be liable to pay corporation tax on any income they receive from the LLP. As with other company structures, if the LLP is expecting to generate income of £61,000 or more (from 1/4/2006; previously it was £60,000), they should register for VAT. If they have employees, the LLP should set up a PAYE system to collect income tax and National Insurance contributions.
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A limited liability partnership is a legal entity and a body corporate. That means it has a legal personality separate from that of its members. Like a limited company, a limited liability partnership can do all the things an individual or company can do. It can make contracts, sue or be sued, hold property or become insolvent.
By and large, partnership law does not apply to a limited liability partnership, but the arrangements between the partners may closely follow a traditional partnership agreement. A limited liability partnership is not the same as a limited partnership, regulated by the Limited Partnerships Act 1907.
The profits of the business of a limited liability partnership are taxed as if the business were carried on by partners in partnership, rather than by a body corporate. This ensures that the commercial choice between using a limited liability partnership or a partnership is a tax neutral one. There are fair and foreseeable provisions to restrict set off losses elsewhere against partnership profits of a partner and other anti-avoidance measures.
Capital Gains Tax: The members of a limited liability partnership are charged to Capital Gains Tax in largely the same way as traditional partners in a partnership. Neither the commencement of the limited liability partnership, nor any change of partner is treated as an event-giving rise to a charge to Capital Gains Tax.
Inheritance Tax: The Inheritance Tax Act 1984 has been amended to provide that the partners and partnership assets of a limited liability partnership are treated in largely the same way as those of a traditional partnership.
UK LLP Formation Packages:
ECONOMY Formation Package* for just £125.00 (with no hidden costs!) Our fees for our LLP incorporation package are £125.00 and include the following items: LLP registration, Companies House filing fees, bound copy of the completed LLP Agreement. Coddan specialising in incorporation of Limited Liability Partnerships in England, Wales, Scotland and in Northern Ireland. Our incorporation service which ENABLES YOU TO APPOINT YOUR OWN members and registered office details straight away. Your LLP is then submitted for registration with your choices as the original LLP officers. (Note: All partnerships are formed with your own details from the time of incorporation; we do not use nominees as some agents do. We do not register partnerships which have sensitive words free of charge.)
* The Economy Package is ideal for small and medium businesses and for customers who have their own address in the UK, and who have at least two partners appointed as LLP members.
Preparation and Filing of the Form LLP2 with the Companies House; Laminated Certificate of Incorporation; Coddan's Standard Partnership Agreement.
Upon the formation of your Limited Liability Partnership, the following documents will be sent to you by Royal Mail: a laminated copy of the Certificate of Incorporation of your LLP, a hard bound copy of the Partnership Agreement of your Limited Liability Partnership, a hard bound copy of the Minutes of the First Meeting of the LLP Partners, a register of Members.
Our online incorporation order form ALLOWS a customer to add more services: domain name registration, free 0800/0870 telephone numbers (receive faxes, setup voicemail. Forward calls to mobile and landlines, nationally and internationally), additional sets of documents, seals, nominees, VAT registration, bookkeeping and accounting service, notarisation & Apostille, etc. You May Use This Form to Incorporate a new Limited Liability Partnership: Economy LLP Registration Package
Please Note: We can register a Limited Liability Partnership with your choice of name. We can process all the requirements of formation, provide registered address and nominee designated members - all the legal requirements to incorporate and operate a Limited Liability Partnership. The formation of limited liability partnership differs from the other company formations.
The order form provided online will help us to fill the appropriate documentation. Once the documentation is ready, we will send it to your email and you will be required to print it, sign it and posted back to us. From the moment we receive all the documentation signed, the process will take 4-6 working days (no expedited service available). Once your LLP has been incorporated with the Companies House, we will prepare all the documentation: laminated Certificate of Incorporation, LLP Agreement, Members Register and Members Certificates. These documents will be sent to you only by post (e-mail LLP documentation service is not available).
UK LLPs from only £125.00! All Inclusive LLP Registration. Each Limited Liability Partnership package includes all statutory paperwork and is fully compliant with the LLP law. All government and filing fees are included in the cost of our Economy pack. All certificates and documents will be sent directly to you by post immediately following the registration of your LLP. It will take just 5 minutes to complete the online registration form, then your LLP could be up and running within 4-6 working days.
THE FOLLOWING UPGRADES CAN BE ADDED TO THE ABOVE PACKAGE:
1. LLP Pliers Seal - £20.00. 2. Domain Name Registration for two years - £16.00. 3. Provision of a Registered Office Address for 12 months - £50.00. 4. Provision of a Nominee Designated Member for 12 months - £125.00. 5. Certificate of Good Standing - £35.00. 6. Notarisation & Apostille of Documents.
For more information about our incorporation packages, please e-mail info@ukincorp.co.uk or call: Call FREE 0800 081 1510 or +44 (0) 207 637 3881, fax: +44 20 7681 3318
PREMIER UK LLP Registration Package* - £175.00 This package has all the features of our Economy package but also has the provision of having your LLP prepaid registered office address. This service (Our Most Popular Plan for EU Residents) is particularly useful for small business, such as those being run by members from home, where a separate address for service of routine paperwork from authorities such as Companies House and the Inland Revenue may be required for various reasons.
* The Premier Package is ideal for small and medium businesses who opt to use our registered address in London, Birmingham, Manchester, Edinburgh or Glasgow.
Preparation and Filing of the Form LLP2 with the Companies House; Laminated Certificate of Incorporation; Coddan’s Standard Partnership Agreement; Registered UK office address; Forwarding of Official Mail.
Upon the formation of your Limited Liability Partnership, the following documents will be sent to you by Royal Mail: a laminated copy of the Certificate of Incorporation of your LLP, a hard bound copy of the Partnership Agreement of your Limited Liability Partnership, a hard bound copy of the Minutes of the First Meeting of the LLP Partners, a register of Members.
All England and Scotland registered partnerships are legally required to have a registered office address. It is the address of a LLP to which Companies House letters and reminders will be sent. The registered office address can be anywhere in England and Wales (or Scotland if your LLP is registered there). The registered office address must always be an effective address for delivering documents to the LLP, and to avoid delays it is important that all correspondence sent to this address is dealt with promptly.
Our registered office address will be recorded at Companies House and all official mail will be forwarded to your designated address. If you want to be a Scottish registered LLP and governed by Scottish law then you will need a registered address in Scotland. We can provide you with a prestigious address in Edinburgh or Glasgow. For LLPs owned by overseas residents it is a legal requirement to have a local registered address where official government mail can send.
Please note that this address SHOULD NOT be used for any trading purposes or general correspondence, or for any form of advertising. The address is only to be used to comply with the requirements of the Companies Act 1985 in relation to official mail and documents.
Please note registered office address is not to be used for general correspondence; our trade mail service is available for this purpose. The registered office address will also be used by the UK tax authorities, and other government departments, to contact the LLP. In the event the LLP is involved in any legal action official papers will often be served at the registered office address.
The LLP stationery, including the letterhead, should contain the LLP's official name, as registered with Companies House; the LLP's registered office address; the registration number or license number; the VAT registration number (if any); and the place of registration, i.e. England & Wales or Scotland. You May Use This Link to Register a Limited Liability Partnership: Premier Package - £175.00 (incorporation, government taxes and government fees are included)
DELUXE LLP Start-Up Package* - £425.00 This package (Our Most Popular Plan for International Customers) includes prepaid registered office, prepaid two nominee designated members for 12 months (incl. General Power of Attorney). If you do not wish to disclose members (partners) names and other personal details for the incorporation, we can provide a nominee designated members service. Usually two membership certificates are issued to the nominee members, who will issue a Declaration of Trust in favor of the LLP beneficiary owner. This service has been designed to allow our clients to retain their privacy for legitimate reasons in a world where your personal information can easily be obtained by anyone that knows where to look. This service is not to be used for any illegal purposes.
* The Deluxe Package is ideal for small and medium businesses who opt to use our registered address in London, Birmingham, Manchester, Edinburgh or Glasgow, and who require our nominee service.
Preparation and Filing of the Form LLP2 with the Companies House; Laminated Certificate of Incorporation; Coddan's Standard Partnership Agreement; Registered UK office address; Forwarding of Official Mail; Nominee Designated Members; Power of Attorney.
Upon the formation of your Limited Liability Partnership, the following documents will be sent to you by Royal Mail: a laminated copy of the Certificate of Incorporation of your LLP, a hard bound copy of the Partnership Agreement of your Limited Liability Partnership, a hard bound copy of the Minutes of the First Meeting of the LLP Partners, General Power of Attorney, a register of Members, set of documents for nominee service.
1. LLP Members (Partners) may be residents outside the United Kingdom. 2. You must appoint a minimum of two Members (Partners). 3. Members may reside anywhere in the world and may be bodies corporate registered in the UK or elsewhere. 4. The liability of the members of the UK LLP is limited to any agreed capital contribution. No minimum capital contribution is prescribed so this could be zero. 5. The business is controlled by the 'Designated Members' (who have a similar responsibility to a directors and secretary of a Limited Company) and the 'Members'. 6. The LLP act confers the same tax transparency as partnerships. Members are considered as self employed for tax purposes. LLPs do not pay Corporation Tax. 7. You have to register with Companies House, the method is similar to registering a Limited Company. 8. As a separate legal entity, LLP's may own property, sue, and be sued in LLP's name. 9. The LLP structure is more suitable for a group of people engaging together in a property or finance venture where it may be necessary to account for partners coming ang and going more frequently than you would expect in a normal partnership business. 10. The types of business that LLPs were originally designed for were professional partnerships such as lawyers, surveyors and accountants. However other businesses may also benefit from using LLPs, particularly new start-ups who might otherwise have formed limited companies.
We have designed a specialist service to provide our clients with anonymity from their limited liability partnership. By appointing our corporate nominee members you can remain anonymous from your LLP, as no personal details will be recorded at Companies House. You will still control the LLP as an authorised representative but it will not be possible to search Companies House records to identify you. You will however still retain full control and ownership of the LLP through our specialist agreements. You May Use This Form to Setting-Up a New LLP Online: Deluxe LLP Start-Up Package - £425.00 (incorporation, government taxes and government fees are included)
Ready Made LLPs: Off-The-Shelf Limited Liability Partnerships: do you want to incorporate your business in England, Wales or Scotland or to transfer your activity to a new LLP and at the same time don't you want or cannot wait? Ready-Made Limited Liability Partnerships are the answer. A ready-made LLP is a Limited Liability Partnerships that has already been incorporated as a general commercial LLP and is ready to trade immediately. Readymade LLP is ideal, if you need purchase house, flat or any other real estate in the United Kingdom and you are foreigner or you can start your new business immediately.
Annual return dates, duties and LLP account return dates are dependent on the original date of incorporation not the purchases date. Please note that all our ready-made Limited Liability Partnerships are formed with General Commercial objects and are therefore able to conduct any nature of business. Off-the-shelf and ready-made are Limited Liability Partnerships which have been incorporated by Coddan in the past yet have not engaged in any business activities since their registration. Generally, aged LLPs are more valuable than new companies. You May Use This Link to Select a Ready-Made LLP:Let Me Check Your List of Ready-Made Limited Liability Partnerships
UK LLP Incorporation Requirements: In order to register a Limited Liability Partnership in the United Kingdom, there must at the outset be at least two people who are associated for the carrying on of a lawful business with a view to profit and who subscribe their names to an "incorporation document". A written statement must also be given that there has been compliance with the requirement that at least two persons, associated for the purpose of carrying on a lawful business with a view to profit, have subscribed their names to the incorporation document.
The statement must be made by a subscriber to the incorporation document or a solicitor engaged in the formation of the LLP. The incorporation document and the statement have been combined into one prescribed Form: LLP2. This form, duly completed and signed, must be delivered to the Registrar together with the prescribed fee.
The incorporation document contained in the Form LLP2 is required to contain specified items of information: the name of the Limited Liability Partnership, whether the registered office is to be situated in England and Wales, in Wales or in Scotland, the address of the registered office, the name and address of the persons who are to be members on incorporation and whether some or all of the members are to be designated members.
The "statement" contained in Form LLP2 does not take the form of a statutory declaration but an offence is committed if a person makes such a statement which that person knows to be false or does not believe to be true. A person who commits this offence is liable on summary conviction to imprisonment for up to six months or a fine that does not exceed the statutory maximum (currently £5,000.00) or both. If the conviction is on indictment the person will be liable to imprisonment for a period of not more than two years or a fine or both.
The name under which a Limited Liability Partnership is to be registered is subject to various restrictions and requirements. The name of an LLP must end with the expression "Limited Liability Partnership" or the abbreviation "L.L.P." or "LLP" (or, where the registered office of the LLP is to be in Wales, a specified Welsh equivalent). The name must not be the "same" as the name of any entity on the Registrar's index of names maintained under Section 714 Companies Act 1985. The name may not include, without the required permission, any of the various prescribed controlled words.
In other words, the usual rules for company names apply with the necessary adaptations for Limited Liability Partnerships. The Secretary of State also has power to direct a change of an LLP's name within 12 months of its adoption if, in the DTI's opinion, it is too like the name of another entity on the index of names.
When the Registrar's office receives the Form LLP2, it retains and registers it. The "statement" contained in Form LLP2 may be accepted by the Registrar as sufficient evidence that the requirements in Section 2 (1) (a) have been complied with. When the documents have been registered, the Registrar issues a certificate of incorporation which is conclusive evidence that the requirements of Section 2 have been complied with and that the LLP is incorporated by the name specified in the incorporation document.
Form LLP2 sets out name of the LLP; address of registered office; name, full address and date of birth of each member. Which of the members are to be designated members or that all are designated members who are responsible for compliance with the requirements of the UK LLP Act. Unlike limited companies, Limited Liability Partnerships do not have a Memorandum or Articles of Association. However, it is important for members to have a valid agreement - this does not need to be provided to Companies House. If you have any questions about how to establish a LLP then please E-Mail or call us: 0800 081 1510 or +44 (0) 207 637 3881, fax: +44 20 7681 3318. You May Use This Form to Create a new Limited Liability Partnership: Economy LLP Registration Package | Establish a LLP in Delaware
Definition of Limited Liability Partnership: Limited Liability Partnership Benefits: The Limited Liability Partnerships Act of 2000 created for the first time a British version of the American Limited Liability Company (LLC). Like its America cousin it is governed by an Operating or Limited Liability Partnership Agreement and can be structured in a way to allow non-UK resident individuals, conducting all their business outside of the UK to enjoy the prestige of a genuine British entity without liability to UK taxes.
However, it is important to note that tax consequences may be created in the jurisdiction of management and control and/or the fiscal residence of the beneficial owners depending on double taxation treaties and the specific drafting of the Partnership Agreement.
The tax authorities in the United Kingdom have confirmed that the taxation base of a limited liability partnership will follow the procedure operated in the past for partnerships. The Limited Liability Partnership itself will not be liable for taxation on profits arising within the partnership, but the profits will be assessed to tax separately on the individual partners.
A limited liability partnership must be a commercial venture operating for profit. Changes in the tax rules are anticipated to confirm that operation through a limited liability partnership by a charity or in relation to investment in shares or property will not be allowed.
The advantages of operating in this way are that no personal liability falls on a member of a limited liability partnership for the contracts or debts of the limited liability partnership and there is no joint or several liabilities for the negligence of any other member. The organisation of a limited liability partnership may well, therefore, be a popular vehicle for future use by the professions in the United Kingdom and for international business operated by non-resident partners outside of the United Kingdom.
There may well be taxation advantages to be obtained from this route, where multi-national business is being undertaken by an international group of partners.
Starting a Limited Liability Partnership: Starting a Limited Liability Partnership. How is a LLP Taxed? The key advantage of a LLP compared with a traditional partnership is that the members of the LLP (it is important that they should not be called partners but members) are able to limit their personal liability if something goes wrong with the business, in much the same way as shareholders in a limited company are able to. Where business owners have wanted to limit their personal liability in the past, they have normally set up limited companies and any profits made by those companies are subject to corporation tax.
Dividends paid by the companies can then be taken as income of the shareholders. LLPs are taxed quite differently in that the profits are treated as the personal income of the members as if they had run their business as a partnership. The taxation of companies and partnerships is very different but taxation should not be the main consideration in choosing a business vehicle.
Please Note: The prices payable for the items that you order are clearly set out in the web site. There will be no contract of any kind between you and us unless and until we receive payment from you. We act as your agent in the incorporation of public companies and electronic filing of Companies House forms. We are not able to guarantee that any such filing will be acceptable to Companies House, nor are there any contractual obligation upon us to do so. If Companies House rejects incorporation or other electronic filing, we will credit your account with a full refund and the contract between us will be made void. Companies House does not offer a cancellation facility for the incorporation of companies or the electronic filing of documents. We will be unable to cancel any such submission on your behalf and will not refund any payment you have made.
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Dear visitors, while having a chat session with a customer, we are frequently requested to give a piece of advice on tax planning or business structuring. We would like to inform you that it is against our principles to provide online advice pertaining to these issues. The points that may be covered during a session include service description, package or service price, navigation at our website, ways of making an order, methods of payment etc. Yet, if you wish us to provide you with advice on tax or business structuring, you should be aware that this service is chargeable.
A LIMITED LIABILITY PARTNERSHIP IS ESSENTIALLY A GENERAL PARTNERSHIP, BUT EACH PARTNER IS NOT TO LIABLE FOR CERTAIN ACTS OF OTHER PARTNERS. LLP FORMATION SERVICE FROM CODDAN - £125.00:
At present there are in the order of 600,000 partnerships in the United Kingdom. These encompass the full spectrum of business and industry, for example, retail, construction, manufacturing, hotels and restaurants, health, and estate agents as well as the professions. In contrast to countries such as USA, Australia and Canada, it is not possible in the UK to retain the internal structure of a partnership whilst enjoying limited liability status.
As a result, partners' personal assets are not protected against claims for which they have no personal responsibility. The objective is to keep the legal framework for business in Great Britain at the forefront of international practice by offering firms the ability to incorporate with limited liability whilst organising themselves as partnerships rather than as companies; whilst at the same time providing safeguards for those dealing with this new form of corporate business. These safeguards include the public disclosure of information about the firm, particularly its finances, and safeguards in the case of insolvency.
It should be stressed that the decision to become an LLP will be a voluntary one, based on commercial considerations. The intention is to offer an alternative choice of vehicle to business. This will help to ensure that Great Britain remains an attractive location for business, allowing registered firms to operate competitively with their overseas counterparts. This is seen as of particular value to very large professional partnerships operating in global markets, who might otherwise be tempted to incorporate outside Great Britain.
As a business owner, you will be faced with many important decisions, including what corporate entity to use in your business. While many countries allow the typical structures of sole-proprietorship, partnership, or limited company for business ownership, now you have the ability to form a limited liability partnership. The limited liability partnership is essentially a form of limited partnership with one significant difference. In a limited partnership, general partners are liable for the partnership's debts and obligations whereas the partners in a limited liability partnership are statutorily provided full-shield protection from partnership liabilities, debts and obligations.
An LLP comprises members and designated members, full details of which must be filed at Companies House. A British LLP must have at least two designated members and the designated members will be responsible for carrying out the duties which would normally be completed by a director or company secretary of a limited company, for example filing any necessary paperwork at Companies House. Designated members can be subject to financial or other penalties if they default in their duties.
Limited Liability Partnership - Points to Consider: All partners enjoy limited liability. Partners can pool their resources and talents. Management, distribution, etc., are governed by the partnership agreement. All partners have apparent authority to bind the partnership to agreements entered into. Under certain circumstances, however, claims for economic loss could be made against individual members who have been negligent. Any such claim would be a civil action outside the contract, as the party would have contracted with the LLP. Limited liability partnerships are similar to companies in the respect that they will be required to provide financial information equivalent to that of companies, including the filing of annual accounts.
While an LLP must file an informational tax return, its income is passed through to its partners and taxed at the individual partner level, without any income tax assessment at the LLP entity level.
Members of an LLP are afforded the protection of limited liability. There are two notable exceptions to this protection:
Insolvency: In the event of the LLP becoming insolvent, members can be required to repay profits (with interest) and other property which has been withdrawn from the LLP within the preceding two years. Such repayment can only be sought if the member knew or ought to have realised that there was no real prospect of the LLP avoiding insolvent liquidation. This test encompasses a subjective and an objective test element and has regard to the member's actual knowledge and belief and the knowledge and belief which would be expected of a similar person carrying on the same function of that member.
Personal Fault: If an individual member is purported to have been negligent, it may be possible to bring a civil negligence action against that individual. However, the courts have indicated that they would have regard to whether the allegedly negligent advice was given in a personal capacity or whether the LLP assumed responsibility for the advice.
The Greatest Benefit of Becoming a LLP: Perhaps the greatest benefit of becoming an LLP is the rule that an LLP partner's personal assets will generally NOT be at risk in the event of a financial disaster resulting from business losses, or errors and omissions or other tortious conduct of an employee or a co-LLP partner. Thus, the LLP law eliminates personal exposure for vicarious tort liability as well as liability for partnership debts and obligations such as bank loans and lease obligations. The LLP law does not, however, change the fact that an LLP partner will still be personally liable for his or her own errors and omissions; whether arising from his or her own acts or failures to act, or negligent supervision of associates and staff.
This differs markedly from general partnership law which imposes joint and several liability on general partners for all tortious acts of their co-partners acting within the scope of their actual or apparent authority, and joint liability for all other partnership debts and obligations. Forming a limited liability partnership is similar to forming a limited company. Incorporation is a simple process, which we have tailored to provide an easy route to completion of the necessary formalities. Once you are happy with your decision that an LLP is the correct vehicle for your business venture, simply follow the link below to our LLP order form and submit the information as requested. Click Here to incorporate a British LLP online!
An LLP can be incorporated wherever "two or more persons associated with the carrying on a lawful business with a view to profit... have subscribed their names to an incorporation document..." (LLP Act 2000). LLPs are incorporated by registration at Companies House. An incorporation document (Form LLP2) to which the initial members have subscribed must be submitted to the Registrar of Companies along with a registration fee. The incorporation document will set out the name of the LLP along with its registered office, as well as the names, full addresses and dates of birth of each member.
The profits of the business of an LLP will be taxed as if the business were carried on by partners in partnership, rather than by a body corporate. This ensures that the commercial choice between using an LLP or a partnership is a tax neutral one. The taxation clauses in the Act are expressed in broad terms so that the existing rules for partnerships and partners will, in general, simply apply to LLPs, and members of LLPs, which are carrying on businesses, as if these were partnerships and partners respectively.
The transfer of an existing business to an LLP will only be treated for tax purposes as giving rise to a cessation of the business of the partnership which is making the transfer if in otherwise identical circumstances a transfer between one partnership and another would do so. The transfer of assets between a partnership and an LLP will only give rise to chargeable gain or capital allowance consequences if, in otherwise identical circumstances, a transfer of assets between one partnership and another would so do. Similarly, Inland Revenue Statements of Practice and Extra Statutory Concessions will apply to LLPs and members of LLPs as they apply to partnerships and to partners.
Important! Changes to Accounting and Auditing Requirements for Limited Liability Partnerships: The Limited Liability Partnerships (Amendments) Regulations 2005. Recent changes to the accounting and auditing requirements in the Companies Act 1985 have now been reflected in the above regulations, and will affect Limited Liability Partnerships (LLP’s) from financial years beginning on or after 1 January 2005. This is a brief summary of those changes.
All LLP’s will have the option of preparing their individual accounts using International Accounting Standards (IAS) rather than UK GAAP, and will also have the option of preparing their consolidated accounts using IAS. LLP’s that continue to prepare their accounts using UK GAAP will have a new accounting option to use fair value accounting for financial instruments, investment property and/or living plants and animals. For LLP’s that continue to prepare their accounts using UK GAAP there are changes to the requirements in these areas:
How items must be presented in the balance sheet and profit and loss account; Disclosure of information on derivatives.
For LLP's that have overseas interests, the current automatic three-month extension under section 244 of the Companies Act 1985 for laying and delivering accounts is repealed. For parent LLP's, there are changes to the requirements and options on consolidation. For LLP's that have their accounts audited, there are new requirements concerning the audit report. A number of amendments have also been made in line with the package of reforms to corporate insolvency introduced by the Enterprise Act 2002. These are aimed at encouraging the rescue of viable businesses that get into financial difficulty. Extension Under Section 244 of the Companies Act 1985: I Would Like to Apply to Extension Under Section 244 of the Companies Act 1985
Administrative Set Up: UK Limited liability comes at a price: the LLP's annual accounts are in the public domain. LLP's have to provide financial information to Companies House and have to file audited annual accounts which are similar to those of a limited company. The name and profit share of the highest paid member must be included within the filed accounts. Similar to a conventional partnership arrangement, the agreement between members of an LLP remains private. This is in contrast to the Articles of Association of a limited company which must be filed at Companies House and are on the public record. The management of an LLP and the relationship between the partners is more flexible than that of a limited company. Whereas a limited company incorporates the statutory management controls imposed by the Companies Acts and other legislation, an LLP can be managed in almost any way that the members wish.
LLP's and their members are not covered by partnership law (implied by statute and common law) as its applicability is expressly excluded by the LLPA 2000. This means that a limited liability partnership agreement will usually be longer than a similar conventional partnership agreement because it must cover matters which may otherwise be incorporated into the agreement by statute or common law. It is possible for a LLP to exist without any written agreement as the (LLP Act 2000 will impart very rudimentary provisions into the arrangement. However, these minimum provisions will be unsatisfactory for most businesses.
Stamp Duty Relief on Conversion: A partnership which converts to an LLP will be eligible for stamp duty relief on property which is transferred within the first 12 months of incorporation provided that: all of the partners in the existing partnership convert to the LLP; the interest of the original partners in the partnership property is the same under the LLP as under the pre-LLP partnership.
WHAT IS A LLP (LIMITED LIABILITY PARTNERSHIP)?
Historically, lawyers organized themselves as general partnerships. For many years, general partnerships were the only way that lawyers could legally practice together. General partnerships did not need any kind of charter or written constitution, which corporations needed. Companies are required to keep minutes of the meetings of shareholders and the boards of directors. No such documentation burdens exist for general partnerships.
British limited liability partnership (LLP) is a new form of legal business entity with limited liability. Limited liability partnerships are taxed as partnerships but in most other respects they are very similar to companies. They MUST have at least two, formally appointed, designated members at all times. (Designated members are similar to executive directors and the company secretary of a company). If there are fewer than two designated members then every member automatically becomes a designated member. Provided that no business or trade is carried out with or within the United Kingdom and the members are located outside of the United Kingdom then LLPs have no liability for United Kingdom taxation.
Basically this is because the limited liability partnership itself will not be liable for taxation on profits or gains, the profits or gains of the partnership will be assessed to tax separately on the individual partners. IF THESE ARE LOCATED OUTSIDE THE UNITED KINGDOM THEN NO UK TAX IS PAYABLE.
An LLP does not have a memorandum or articles of association or a specified management structure. Consequently, in order to avoid potential disputes over the management of the company and the conduct of the members it is important that the members enter into a valid and effective agreement between themselves before the LLP is incorporated. The members agreement should cover the sort of issues dealt with in a normal partnership agreement. Partnership law is expressly disapplied from LLPs and as such it is important that the members agreement is extremely comprehensive. If the members agreement is silent on certain issues there is a provision under the LLP regulations for certain default provisions to apply, but those default provisions would almost certainly be unusable.
An LLP is also considered to be a 'Legal Person' in its own right, and can operate in the same way as a company in most respects. However, the one important difference between an LLP and a limited company is the way in which the profits are taxed, with each MEMBER of the partnership being taxed according to the share of the profits that they receive rather than the LLP paying tax directly on its profits. This structure may offer advantages to non-UK residents.
What is the Difference Between a Limited Liability Partnership and Limited Company? The main difference is that a limited liability partnership has the organisational flexibility of a partnership and is taxed as a partnership. In other respects it is very similar to a company.
Who Can Form a Limited Liability Partnership? The Act generally allows two or more persons associated for carrying on a lawful business with a view to profit to form a limited liability partnership by subscribing to its incorporation document - Form LLP2. (In law, "person" includes individuals and companies.) However, English and Scottish limited liability partnerships are not available for all activities such as non-profit making activities.
The limited liability partnership (LLP) is a separate legal entity with unlimited capacity so that an LLP can do anything that a natural person could do. It has the ability to enter into contracts and hold property, and will continue in existence in spite of any change in membership. While in law an LLP is separate from its members, its members may be liable to contribute to its assets if it is wound up; the extent of that potential liability is as specified in regulations under the Act (Section 1 (4)). The limited liability partnership's existence as a separate legal entity makes it more closely akin to a company than to a partnership (except insofar as the internal relations are governed by agreement between the members). The Act therefore draws on the principles embodied in the companies' legislation.
As an LLP is a body corporate, Partnership Law will not in general apply to an LLP. Elements of Partnership Law may, however, be applied to LLPs by regulations (Section 15 (c)); such regulations will apply in the absence of agreement as to any matter concerning the mutual obligations of LLP members, or LLP members and the LLP (Section 5 (l) (b)). Care is needed, when an LLP has been established, that the members (who enjoy limited liability behind the Limited liability partnership) do not establish relationships between themselves which would amount to a partnership (under the Partnership Act 1890) in effect running in parallel to the LLP. Clearly any such parallel partnership would not enjoy limited liability.
In any dealings with third parties, it should be made clear that the only contracting party is the LLP. The members should avoid in any documentation between themselves any suggestion that there are any mutual agency relations between members; a member's only agency relationship should be as an agent for the LLP. Some advisers consider that, to avoid problems in this area, the use of the term "partner" to describe members should be avoided, and that use of the words "the partnership" or "the firm" to describe the LLP should similarly be avoided.
The LLP's existence as a corporate entity means that the effect of the general law is different from its effect on a partnership. For example, a third party will usually contract with the LLP itself rather than with an individual member of the LLP whereas, in general, a partner contracts as principal and on behalf of the other partners. Should a partner be negligent in work carried out for a client, there will generally be two possible causes of action against that partner: contract and tort. However, because the Limited liability partnership will be a separate legal entity with which the client has contracted, only one action (the tort action) is potentially available against the member.
As regards the management of the internal affairs of the LLP the position is similar to that applicable to partnerships. Members will not be obliged to enter into a formal agreement among themselves and, if an agreement is entered into, there will be no obligation to publish it. As in the case of partnerships, however, there will, in general, be clear advantages in having a formal written agreement between members to regulate the affairs of the undertaking and to avoid disputes between them. The formal procedures needed to establish an LLP, including the need for an application to the Registrar, are likely to encourage the members to set up a formal arrangement before the LLP commences business.
The Regulations do, however, include default provisions governing the relationship between the members, which apply where no agreement exists or the agreement does not include provision to deal with a particular issue. The profits of the business of an limited liability partnership are taxed as if the business were carried on by partners in partnership, rather than by a body corporate. This is intended to ensure that the commercial choice between using an LLP or a partnership is a tax neutral one.
LLPs will be subject to the same taxation regime as current partnerships and will still be able to regulate their internal constitution by a confidential partnership agreement. However, the LLP will constitute a separate legal person and third parties will contract with the firm rather than with individual partners. Although partners will be liable for their own acts they will not be liable for the acts of their fellow partners, for which the LLP as a whole shall be liable. We are not in a position to advise on all the US tax consequences of a UK LLP, but it is clear that the US views the LLP as a corporate vehicle for US tax purposes so giving the LLP entirely different UK tax and US tax treatments.
For example, a US group investing in the UK and having part of its group in the UK, may find the LLP is able to benefit from the favourable UK tax treatment touched on above whilst ensuring, for US purposes, that certain UK profits would not be taxed in the US until the L.L.P. distributes those profits to the US entities in the group.
Whilst the US and Great Britain tax advantages of the LLP very much depend on the particular circumstances of the relevant corporate group, the LLP is unique amongst UK vehicles in having such a split United Kingdom and US tax treatment and should be considered carefully for any group restructuring.
Relevance to Private Equity Structures: In a typical limited partnership fund structure, a company will be the general partner of the limited partnership fund, which will contract to receive management supplies from a management company. For the reasons set out below, private equity and venture capital houses (and especially smaller, independent houses) should consider whether it might be more tax efficient to use an LLP instead of a company to carry out the management function, by transferring the management role of existing or new funds from the management company to a new LLP. Executives would be members of the LLP, instead of being employed by the management company. As the liability of members of an LLP is limited, any additional liability risks for executives will generally be manageable.
TAX ASPECTS
The main tax consequences of using an LLP are as follows:
Tax Transparency: The fees earned by the management LLP will accrue directly to its members, in the same way as they would in an ordinary partnership. That compares to a management company, which pays tax on its profits. However, an LLP cannot be in a group with other companies for the purposes of loss relief and capital gains tax so that, for example, excess management expenses of a corporate general partner cannot be surrendered to it.
National Insurance: The national insurance position of members of an LLP is the same as that of partners in an ordinary partnership. The members themselves will pay class 2 and 4 national insurance contributions which will amount to approximately £2,200 a year, together with the 1% surcharge on profits introduced in 2003. As the members of an LLP are, strictly speaking, self-employed, there will be no obligation on the LLP to pay employer's national insurance contributions on such amounts, only on the amounts of the payments to employees of the LLP. A company would have to pay national insurance contributions at the rate of 12.8% on the value of the employees' salary/benefits.
Restricted Securities Regime: Part 7 ITEPA. Schedule 22 of the Finance Act 2003 (now incorporated in Part 7 of ITEPA). introduced sweeping changes to the tax treatment of securities and interests in securities acquired by reason of employment. Where any such securities or interests in securities are acquired on or after 16 April 2003, and where any condition or restriction applies which would or could reduce the market value of those securities, they will fall within the new regime. When the restrictions fall away, or when the securities are sold, an income tax charge will arise based on market value, with a proportionate deduction depending on what the employee paid (if anything) to acquire the securities. There could also be PAYE and national insurance liabilities.
This regime raises problems both for the management company structure and for a structure using an LLP. Normally, the executives would be employees of the management company. If they are also awarded shares in the company, such shares would almost certainly be employment related securities and may fall within the restricted securities regime. However it will not be in every case that shares will be awarded to the executives, and it may now be sensible, taking other commercial considerations into account, not to award shares. The new regime also creates two potential problems for members of an LLP. First, the term "securities" is extremely widely defined and includes units in a collective investment scheme, which term is also given a broad definition.
It is potentially wide enough to cover any partnership but the Revenue have indicated that it would not cover one that is trading. Although the LLP may be carrying on a trading activity (for example, as manager of a fund), if it has a significant investment (and this could include its shareholding in the general partner company) this could bring it within the collective investment scheme definition and therefore interests in it would be "securities" for the purposes of the legislation.
Secondly, "employment" is also widely defined, including both former and prospective employments. Therefore if a group of existing employees operating through a management company re-forms and creates an LLP, they will probably acquire an employment related security (their interest in the LLP) by virtue of a former employment. Similarly, if a new joiner becomes a member of an LLP and at the same time it is expected that he will join the board of an investee company, he may acquire his LLP interest in connection with that prospective "employment" (a non-executive directorship counts as "employment" for these purposes).
It is possible to make an election to disapply the restricted securities regime. If there is the slightest possibility that the LLP itself could be a collective investment scheme as described above, and if the former or prospective employment condition could apply, the founder members of the LLP should make such an election, before the LLP acquires an interest in the general partner company. Making such an election could give rise to an income tax liability on joining the LLP but that liability will not be significant if the LLP has no real value at that time.
Carried Interest: Where executives are employed by (or are directors of) a management company, there will always be an "employment" and it will be more difficult to ensure that carried interest is not within the restricted securities regime, especially for those who join after the fund has been raised. The entitlement of an LLP member to receive carried interest would not normally be an employment related security. However, if the members' interest in the LLP itself is an employment related security as described above, and carried interest holders (members of the LLP) obtain carried interest through their LLP membership, the carried interest is also deemed to be obtained from employment.
Also, if any individual members of the LLP hold an office or employment with any company or other person connected with the LLP (for example, a general partner company or an investee company controlled by the fund) the opportunity for those LLP members to receive carried interest can be deemed to arise from that office or employment, and the result would be to bring the carried interest within the restricted securities regime. We do not believe that the new rules were intended to have this effect and discussions are taking place with the Inland Revenue to seek clarification.
It should be emphasised that an interest in an LLP will not in every case be regarded as an employment related security, and with careful structuring, this possibility can be avoided. Specific consideration should always be given to whether an election to disapply the regime should be made, in which case the possibility of adverse tax consequences is minimised, and the benefits of the LLP structure can apply without subjecting members to tax on deemed employment income.
Personal Service Company Rules: The Inland Revenue impose income tax and national insurance charges in situations where an individual provides services through an intermediary company in circumstances where, in the absence of an intermediary, the individual would be an employee of the ultimate recipient of the services. The legislation itself seeks to apply the tax charges where "an individual personally performs, or is under an obligation personally to perform, services for the purposes of a business carried on by another person." As the LLP (which will be separately regulated) is not providing the services of any particular individual performing the services, the Inland Revenue may accept that there will be no income tax or national insurance liabilities, because there is no intermediate entity to which the legislation could apply. However, careful structuring is required to ensure that the arrangement is not vulnerable to attack on these grounds.
Flexibility for Changes of Partnership Interest: Using an LLP could give greater flexibility when changing the interests held by the members of the management entity. Where the entity is structured as a company, any award of shares or share options to a new executive joining as an employee could give rise to an income tax liability. If the management entity is an LLP, new joiners could immediately be given equity with no tax consequences, provided that the arrangement is structured in such a way that there is no possibility of the restricted securities regime applying.
Sale of shares in management company. A sale of shares in a management company could potentially give rise to a tax charge on capital gains, although business asset taper relief would apply to any disposal, with the maximum rate of taper (an effective tax rate of 10% for a higher rate taxpayer) applying after only two years' ownership. Sales of shares in a management company can be made tax-free by a trust established by non-residents or non-domiciliaries.
Sale of Management Business where LLP Used as Management Vehicle: Business asset taper would of course also apply to a disposal of a partnership share in a trading LLP. However, on a disposal of the entire management business, there may not be any significant assets as the main asset would be the contract to manage the limited partnership. Gains made on the sale of an LLP interest by trusts set up by non-domiciliaries or non-residents as mentioned above will remain liable to capital gains tax because the trustees will be treated as carrying on a trade in the UK, but incorporation of the LLP prior to disposal of the business may improve the position.
Stamp Duty: The transfer of an interest in an LLP is liable to stamp duty at the relevant rate, that is, at 1%, 3% or 4%, depending on how much is paid for the transfer. Such interests are treated for stamp duty purposes as if they were interests in a general partnership, rather than as shares which would attract stamp duty of 0.5%.
Interest Relief: Where new partners take out a loan to join the LLP (which has a trade), interest relief will be available.
Liquidation: When an LLP ceases to trade, the tax transparency also ceases so that the LLP will be subject to corporation tax on its chargeable gains when amounts are realized on final dissolution. Management LLPs set up to manage a particular fund which are not intended to be used for other future funds may therefore fall foul of this rule; however, it is difficult to see exactly what assets the LLP would have at that stage, as it is a service entity, rather than providing goods and therefore having stock in trade assets. Even then, the Inland Revenue have said that they will not take the point unless the LLP is being wound up for tax avoidance reasons, or the period of winding up is protracted.
Pensions: Members of an LLP will have to make their own personal pension arrangements out of their proportionate share in the LLP's profits. The maximum contribution which can be made is 17.5% of net relevant earnings up to £99,000. Older members (36 plus) will be in a slightly better position, as they can contribute between 20% and 40%, depending on age.
VAT: Since an LLP is a body corporate, the LLP itself is the legal entity for VAT purposes. It can therefore be registered for VAT and, most importantly, in the typical limited partnership scenario, it can be VAT registered as a group with the general partner, provided that the control test is met, that is, either the LLP will have to have the general partner as its subsidiary, or the general partner would have to be a controlling partner in the LLP (it seems that the former scenario is much neater).
There are both advantages and disadvantages to adopting an LLP structure, and anyone considering whether to go down this route would need to analyse all the relevant factors by reference to their own individual circumstances. The decision will be a finely-balanced one and will depend on a range of factors, including the extent to which the executives involved in management are to share in incentive arrangements. In many cases it will be advantageous to use an LLP as the management vehicle, because there will only be a risk that the restricted securities regime will apply if the structure falls into one of the specific traps, and it will generally be harder to avoid these traps using a management company structure.
BACKGROUND TO THE LIMITED LIABILITY PARTNERSHIP ACT:
The Limited Liability Partnerships Act 2000 came into force on 6 April 2001 (by virtue of Statutory Instrument no. 3316 of 2000). The main purpose of this new Act is to create a new form of legal entity, the Limited Liability Partnership. An LLP combines the organisational flexibility and tax status of a partnership with limited liability for its members. This limited liability is made possible by the fact that an LLP is a legal person distinct from its constituent members.
The Act empowers the government to apply the provisions of company law and insolvency law, with appropriate modifications, to LLPs. These powers have been used, through the issue of the Limited Liability Partnerships Regulations 2001, as the basis for much of the constitutional structure of LLPs and has enabled safeguards to be put in place for those dealing with LLPs. The safeguards include provision for the public disclosure of information about LLPs, particularly their finance, and provisions dealing with the situation if an LLP should become insolvent.
In general, the Act has effect only in England, Wales and Scotland. In Great Britain businesses are structured mainly as limited companies, partnerships or sole traders. Each of these is subject to different regulatory and tax regimes reflecting their organisation and ownership. The only option for many professional practices, in the past, has been to operate as partnerships, since either the general law or the rules of their professional body denied them the ability to incorporate. Accountancy firms have, for instance, only been permitted to incorporate since 1989. As such professional practices were required to operate as partnerships, they were subject to the legal rules relating to the liability of partners.
The Partnership Act 1890 sets out special rules relating to the liability of partners to persons dealing with them: all partners are liable jointly, and in Scotland severally also, with their other partners for all the debts and obligations of the partnership incurred during their membership. All partners are jointly and severally liable for any loss or damage arising from the wrongful acts or omissions of any of their partners (as well as their own) arising in the ordinary course of the partnership's business or with the authority of the partners. When the members are liable jointly and severally for any loss or damage, this has the effect that an injured person may opt to sue one or more of the members separately or all of them together.
These arrangements were generally appropriate when all partnerships were small and the partners were of the same profession working closely with one another. However, unlimited liability for partners has become an increasing cause for concern in the light of: a general increase in the incidence of litigation for professional negligence and in the size of claims: the growth in the size of partnerships (since in a very large partnership not all the partners will be personally known to one another); the increase in specialisation among partners and the coming together of different professions within a partnership; and the risk to a partner's personal assets when a claim exceeds the sum of the assets and insurance cover of the partnership. Although these concerns arise most acutely in very large professional partnerships they are relevant to partnerships generally.
The Limited Liability Partnership goes some way towards addressing these concerns since its members benefit from limited liability, the LLP being a separate legal person. In general the LLP and not its members will be liable to third parties. Proposals that it should be possible in Great Britain to organise a business as an LLP emerged out of a review of the law of joint and several liability. In 1996 the DTI published a feasibility investigation of joint and several liability carried out by the Law Commission. The investigation focused mainly on the joint and several liabilities of professional defendants, seeking to ascertain whether there was an arguable case for replacing joint and several liabilities by, for example, a system whereby each defendant might be liable for only a proportionate share of the loss.
The DTI took the opportunity to consult on the distinct but related question whether to amend the law in Great Britain to allow Limited Liability Partnerships. This question was asked in the knowledge that the concept of LLPs was well known in some overseas jurisdictions, particularly the USA. Jersey too was working on implementing its own LLP legislation in response to representations from the accountancy profession, with a view to attracting offshore registrations.
In February 1997 the DTI published a consultation paper 'Limited Liability Partnerships: A New Form of Business Association for Professions' (URN 97/597). The response to the paper confirmed that there was a demand for the new vehicle across a wide range of professions, and agreement in principle from those consulters who are potential clients of and providers of capital to LLPs. The paper was followed by the publication of a draft Bill and regulations (URN 98/874) in September 1998. Revised draft regulations were published again for consultation, together with the draft Bill (URN 99/1025) in July 1999. In February 2000 a further consultation document was published concerning regulatory default provisions governing the relationship between members (URN 00/617), and revised regulatory default provisions were published in May 2000 (URN 00/865). The outcome of the various consultations was the enactment of the Act by Parliament in July 2000 and the issue of the Regulations in March 2001.
It should be noted that in the UK, a LLP will normally be taxed as though transparent for taxation purposes so that the profits, losses and gains will be directly attributable to the partners themselves. Whilst the most emotive differences may relate to the public disclosure requirements, the other differences between a UK LLP and US LLC may have a significant financial impact for a new business and the partners when setting up in the United Kingdom. There is also uncertainty how a United Kingdom LLP will be taxed in a foreign jurisdiction as the United Kingdom LLP has a distinct separate corporate legal personality in the United Kingdom. It is therefore possible that some foreign jurisdictions may seek to tax income or profits arising in their country as though the LLP were a body corporate. Great care will then need to be taken if it is desired to operate in the UK through a LLP business vehicle and consideration should be given to using the LLP vehicles available in alternative jurisdictions.
Top Tips to LLP Status: As increasing numbers of organisations opt for Limited Liability Partnership (LLP) status, PKF accountants and business advisers is offering ten top tips to ensure the process goes as smoothly as possible:
1. Converting to an LLP is a major project, so plan it well in advance.
2. Do not base the LLP agreement on your partnership agreement - start afresh.
3. The LLP agreement should be comprehensive as there is no fall back on partnership law.
4. Operate the LLP as a corporate vehicle - not as if you are still partners - in order to reap the full benefit.
5. Determine the impact on your profits and balance sheet of adopting full UK accounting standards in the LLP accounts.
6. Be prepared for the new rules of income and profit recognition for professional service firms, and for the likely tax charge when you implement them.
7. Beware of pension and annuity obligations - they can seriously damage your partners' wealth!
8. Agree with your bank on how your current credit facilities will be provided to the LLP going forward.
9. Document the transfer of banking facilities from the firm to the LLP in a Novation Agreement.
10. Provide the bank with a new mandate, supply enough information to enable them to undertake Know Your Customer (KYC) on the LLP as a new customer, and specify any operational banking requirements (e.g. a new signatory style on cheque books).
Tax Transparency: Where an LLP carries on a "trade profession or other business" with "a view to profit" then all of the activities of the LLP are generally treated as being carried on in partnership by its members and not by the LLP as a separate entity (section 118ZA(1), ICTA 1988). LLPs cannot therefore be treated as group companies for any corporation tax purposes.
The actions and property of the LLP are attributed to members of the LLP and members are assessed to tax on their share of an LLP's income or gains as if they were members of a general partnership. This tax transparency can only be switched off in limited circumstances such as the failure of an LLP to carry on a business with a view to profit or when an LLP is in liquidation or is being formally wound up by order of the Court. There are also limited exceptions to the transparency for the purposes of capital gains rollover and holdover relief. It is also important to note that overseas jurisdictions may not recognise the tax transparency of the LLP, which may affect the LLP for double tax relief purposes.
Conversions: A large number of existing general and limited partnerships obviously have an existing tax position and in principle the conversion of such partnerships into LLPs is intended to be tax neutral. Conversion should not bring about balancing events for capital allowance purposes or the cessation of the old partnership's trade or profession where an LLP simply succeeds to the whole of the business that the old partnership previously carried on. Similarly, conversion of itself will not constitute a disposal by partners of a business (or, by concession, partners of a profession) of their interests in the old partnership's assets. Entitlement to taper relief and indexation allowance is also unaffected.
The conversion to LLP status will also not prevent members of the old partnership carrying forward loss relief against their share of future LLP profits. Conversely, LLP members may carry back any terminal loss relief against profits that accrued to them under the old partnership.
Tax Reliefs: Consistent with the principle that members of the LLP are taxed on their share of LLP profits and gains, members of LLP are allowed to apply their share of the LLP's trading or professional losses against such profits and gains under section 380 of ICTA 1988. Other reliefs which are similarly available to members of an LLP are relief for trading losses arising in the early years of a trade and relief for loan interest. HM Revenue & Customs (HMRC) calls these reliefs "sideways loss relief" and, in certain circumstances, members of trading LLPs (but not professional LLPs) who have income other than that from the LLP cannot necessarily apply sideways loss relief to the whole of that additional income.
Double Tax Relief: If overseas tax authorities regard foreign branches of UK LLPs as opaque for tax purposes, UK tax resident members of the LLP will be entitled to claim tax relief on their share of any foreign tax on the overseas branch's profits. However, the LLP cannot claim relief from such tax because it is not a taxable entity itself in the UK, unless its tax transparency has been switched off as described above.
Property Investment LLPs: The tax transparency of LLPs is modified in the case of Property Investment LLPs (PILLPs). PILLPs are LLPs where the business consists wholly or mainly of investments in land and derive the principal part of their income from land. If pension funds, pension businesses of life assurance companies and friendly society businesses are members of a PILLP and receive income or gains from PILLPs, they are denied the normal taxation exemptions that such entities otherwise enjoy. The exemptions are overridden so that LLPs cannot be used to create tradable interests in a corporate tax transparent investment vehicle. A more focused property investment fund (PIF) consultation to deal with such issues is currently under way.
Stamp Duty Land Tax and Stamp Duty: When a partnership merely converts to an LLP and transfers a chargeable property interest into the LLP in the course of the conversion process, relief from stamp duty land tax (SDLT) is available in certain circumstances. Under section 65 of the Finance Act 2003, no SDLT is chargeable if the effective date of the land transaction is within the period of one year from the date of incorporation of the LLP and the proportions held by the members of the LLP in the chargeable property interest remain the same before and after the transfer.
New rules relating to partnerships (including LLPs) and the transfer of property came into effect on 22 July 2004. A detailed analysis of the provisions is outside the scope of this article but as a result of these rules, SDLT can be charged on the following (subject to any available reliefs):
Transfers of a chargeable property interest into an LLP either by an existing partner or in exchange for an interest in the LLP.
Transfers by an LLP of a chargeable property interest to a partner or former partner.
Transfers of an existing partner's share of an LLP which includes a chargeable property interest for money, or money's worth, to a person who is or becomes a partner. Note that consideration is also regarded as having been given for such a transfer where an existing partner reduces his share in an LLP, or ceases to be a partner, and withdraws money or money's worth from the LLP when another person becomes a partner.
The charge is usually based on the extent to which ownership of property interests are effectively transferred, although in the case of partnerships where all of the partners are bodies corporate a charge based on the property's full market value can arise. It should also be noted that stamp duty is still charged on transfers of partnership interests. The Finance Act 2004 introduced a mechanism which was intended to avoid a double charge where the SDLT provisions above also apply, though it remains unclear whether a double charge is avoided in all cases.
National Insurance: A further benefit for members of an LLP who are individuals is that Class 4 National Insurance Contributions (NICs) will be payable, as in the case of a partnership, so no employers' NICs will be payable in respect of members' profits shares.
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At present there are in the order of 600,000 partnerships in the United Kingdom. These encompass the full spectrum of business and industry, for example, retail, construction, manufacturing, hotels and restaurants, health, and estate agents as well as the professions. In contrast to countries such as USA, Australia and Canada, it is not possible in the UK to retain the internal structure of a partnership whilst enjoying limited liability status. 
The main tax consequences of using an LLP are as follows: 
