Summary LPC Exam Notes - Business Law & Practice Workshop 16 (University of Law)

BLP WS16

Incorporation
Limited Liability Partnerships
Limited Liability Partnerships (LLPs) are essentially a hybrid between a partnership, and a company.

Legislation  Limited Liability Partnerships Act 2000 (LLPA 2000)
 Limited Liability Regulations 2001 (LLP Regs 2001)
Creation  Formalities - Created by registration at Companies House.
 Must send two forms to Companies House:
 An “incorporation document” which contains:
 Name of the LLP
 Address of the registered office.
 Name and address of each member.
 Identities of designated members.
 An “incorporation form” LL IN01
 Confirms that the obligation under s2(1)(a) that two or more partners have
subscribed their names to the incorporation document have been complied
with.
 Companies House issue a certificate of registration.

Designated  By s2(1)(a) and s8(2) LLPA 2000 an LLP must have at least two “designated members”.
members Designated members are members with specific responsibilities under the LLPA 2000, the CA 2006
and the IA 1986.
They must:
 Sign and file annual accounts with the Registrar (CA 2006, s444(6))
 Send notices to the Registrar e.g. a member leaving or joining (LLPA 2000, s9(1))
 Apply for a change of name of the LLP (LLPA 2000, Sch 1 para 5(2)(b))
 Apply to strike off the LLP from the register (CA 2006 s1003) and wind up the LLP (IA 1986,
s89(1))
Key  Separate Legal Personality
characteristics  Unlike partnerships, LLP’s have their own legal personality, meaning the LLP itself can sue,
be sued etc.
 This means that the LLP will not cease to exist if members leave so that there are less
than two, it will continue to exist until it is dissolved.
 Members have Limited Liability
 Any losses are losses of the LLP, meaning that members do not need to meet the LLP's
liabilities.
 That being said, on insolvency:
 Any capital paid into the LLP
 Any outstanding profits
 Any loans to the LLP which remain unpaid
May be at risk of being lost.
 s5(1) LLP Regs 2001 - the regime in the Insolvency Act 1986 applies to an insolvent LLP,
meaning members may be found guilty of misfeasance, fraudulent trading, or wrongful
trading.
 No Management Structure i.e. no Model Articles
 LLP’s are completely free to set up their own management structure and determine
themselves how they make decisions.
 Every member of an LLP is the agent of the LLP (LLPA 2000, s6(1)).
 Thus, they may bind the LLP if they contract with actual authority, or apparent authority.
 An LLP can grant fixed or floating charges.
 The LLP must keep a register of these (CA 2006, s869-873)
The Default  Much like the Partnerships Act 1890, in absence of an LLP agreement, “Default Rules” contained
Rules in s7 LLP Regs 2001 apply to the LLP:
 By default:
 s7(1): Members share equally in capital and profits
 (as with s24(1) of the PA 1890 for Partnerships).
 s7(2): The LLP indemnifies each member for payments made by it and personal liabilities

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, BLP WS16
incurred by the member in the ordinary and proper conduct of the LLP’s business
 (s24(2) PA 1890).
 s7(3): Members have a right, not an obligation, to take part in the management of the
LLP.
 (s24(5) PA 1890)
 s7(4): Members have no entitlement to take remuneration.
 S24(6) PA 1890
 s7(5): New members cannot be introduced without the consent of all of the existing
members.
 S24(7) PA 1890
 s7(6): Ordinary matters will be decided by a majority, apart from a change in nature of the
business which must be unanimous.
 S24(8) PA 1890
 s7(7): Books and records must be made available for inspection by any member.
 S24(9) PA 1890
 s8: As with partnerships, the default rules do not provide for expulsion.

 Members of LLP’s owe the same duties as Partners:
 s7(8): Members must divulge all relevant information connected with the business and
their relationship to the other partners.
 s7(9): Members must account to the LLP for any profits made from a competing business
without consent of the members.
 S30 PA 1890
 s7(10): Members must account to the LLP for any benefit derived without the consent of
other members from a transaction concerning the partnership.
 S29 PA 1890
Differences to  Leaving an LLP:
Partnerships  Unlike Partnerships, there is provision in the LLPA 2000 that an individual can cease to be
a member by giving reasonable notice to the other members (LLPA 2000 s4(3)).
 Bankruptcy does not automatically result in termination of membership of the LLP.
Ongoing  Must file accounts and certain information with Companies House.
Obligations  Less burdensome regulatory requirements than Companies but more-so than Partnerships.

Advantages and disadvantages
Pros of an LLP Cons of an LLP
 Separate legal personality and limited liability –  Administration – has to file accounts with the Registrar
members are not liable for debts of the firm unlikely of Companies.
partnerships.
 Flexible organisational structure – no Model Articles.  Unlike partnership, LLP’s are subject to the clawback
provisions in the IA 1986 in the event of insolvency.
 Can grant fixed or floating charges, though these must  It is possible to assign a share in an LLP; however, this is
be registered. less easy than simply transferring shares.
 Can appoint an administrator.  LLP cannot convert into a Ltd company.

Different to Limited Partnerships

- Limited Partnership Act 1970: Two partners
- Not separate legal person but have to register at Companies House
- One general partner, one limited partner
- Only limited partner if do not participate in management of this LP – cannot withdraw capital during
lifetime of the partnership.




Partnerships vs LLP vs Limited Companies
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