Limited Liability Partnerships (LLPs) (essentially limited liability corporate entities with the tax advantages of a general partnership) were introduced by the LLP Act 2000 and are governed by that Act and two subsequent sets of Regulations. By virtue of those Regulations certain provisions of the 1985 Act were deemed to apply to LLPs. With the introduction of the 2006 Act, the question arose of how the 2006 Act should be applied to LLPs. After a consultation period, the Government’s response was published on 23 May 2008.
In essence, the provisions of the 2006 Act which correspond to provisions in the 1985 Act that applied to LLPs by virtue of the Regulations, will now have effect with regards to LLPs, with necessary modifications. These will come into effect in October 2008 (accounts and auditing) and October 2009 (remaining provisions in line with those applying to companies). Some of the key issues are summarised below.
There are no proposed changes to the structure and incorporation of LLPs. However, a member’s residential address will not be a matter for public disclosure from October 2009 and a service address can be provided in place of the member’s residential address. This is a welcome change which will provide members of LLPs with a greater degree of privacy.
The 2006 Act provisions correct a previous oversight by the Government regarding the execution of deeds by LLPs, with the effect that a document validly executed by an LLP as a deed will now be presumed to be delivered as a deed on execution, unless the contrary intention is proven. As a reminder, unless otherwise stated in the LLP Agreement, simple contracts may be executed by a member (provided that member signs for and on behalf of the LLP) but important contracts and deeds are only validly executed by an LLP if they are signed by two members and expressed to be executed by the LLP or if the LLP’s seal (if any) is affixed to the document. (This contrasts with the position for a company which can now validly execute a deed with the signature of only one director provided it is witnessed). Where the document makes it clear on the face of it that it is meant to be a deed, it will have effect on delivery as a deed.
New regulations covering LLPs’ accounts and audits are due to come into force on 1 October 2008 addressing the different requirements for small and for large and medium size LLPs. However, members of LLPs should note that certain provisions relating to filing periods, filing deadlines and penalties for late filing of accounts have already been implemented and apply to LLPs which have financial years beginning on or after 6 April 2008.
From October 2009 the more restrictive regulations governing the choice of company names and trading requirements will also apply to LLPs.
The jury is still out on the treatment of overseas LLPs with branches in the UK. For the time being, the 2006 Act provisions imposing more onerous requirements on overseas companies will not apply to LLPs.
Retaining the principle that aspects of company law regulating internal conduct should not apply to LLPs, the 2006 Act provisions making electroniccommunications the default position for companies will not apply to LLPs. The method of communications remains a matter for agreement between the members.
Still a relatively new entity, many issues regarding the use of LLPs and the application of the legislation are as yet untested. Whilst LLPs have been widely embraced by professionals seeking the flexibility of a partnership structure with the protection of limited liability, their potential as an alternative to limited companies, general partnerships (such as farming or property management) or family trusts is still being debated. Our specialist LLP team at Bircham Dyson Bell is monitoring this area with great interest and would be happy to discuss any questions you may have in relation to LLPs.