#3239 - Ll Ps - Business Law and Practice

Definition:

• A hybrid between a traditional partnership and a company.

• The partners (‘members’) are protected by / benefit from limited liability to the amount of capital they contributed to the business. [‘the partners only have exposure to liability for those debts up to the value of their financial interest in the LLP].

• S.1(5) 2000 Act = LLP is a body corporate. The LLP has legal personality. Therefore it is liable for its own debts and it owns its own assets. The LLP is a contracting party.

• The ‘designated members’ are the directors of the partnership.

• LLP must publish accounts and comply with other regulatory requirements adapted from company law.

• Changes in membership of LLP does not affect its continued existence.

Statute:

• Limited Liability Partnership Act 2000 (LLPA)

• LLP Regulation 2001

• Companies Act 2006 (Part 5, SS.53-55)

• LLP (application of the Companies Act 2006) Regulation 2009

Formalities to incorporate a LLPA:

• S.2 LLPA 2000

Limited Liability Partnership Agreement

• Advise client to make an agreement otherwise the LLP is subject to the default position in legislation (S.5 LLPA – default position is in Regulation 2001)

• Default position – Reg 2001 Part VI Reg.7

What is NOT covered in the regulation:

• Drawings – the LLP agreement will need to specify what drawings can be taken by the members.

• “intention to deal fairly and honestly”

• S.6 Regulation 2001 – every member is an agent of the LLP. It does not say that members are agents of each other. Put in the agreement.

Designated Members (DMs)

• Directors of company

• S.4A: if there are less than 2 designated members for a period exceeding 6 months – sole DM is liable and partnership looses benefit of limited liability.

• S.8 If it is not specified who is the designated member – all members are designated members.

• Duties are not set out in LLPA or Regulations.

• LLP Agreement should specify duties and obligations of DMs

Limited Liability in event of partnership being wound up:

• S.1(4) LLPA: The members of a limited liability partnership have such liability to contribute to its assets in the event of its being wound up as is provided for by virtue of this Act.

• S.14 LLPA: ‘Insolvency and winding up’ – the provisions of the Insolvency Act 1986 apply with modifications established by the regulations.

• LLP Reg 2001 – Reg 5 (pp.2640 / 2641): see schedule 3 for modifications – these apply to LLPs.

• Schedule 3 Reg 2001 (p.2645): S.74 of IA 1986 apply with modification that member of LLP has limited liability to contribute to assets of the business to pay off creditors “to the extent that he has agreed to do so”. (i.e. members only liable for what they have agreed)

• APPLICATION: Look the LLP Agreement – is there a clause that says no member is liable to contribute on liquidation. Only liable for their capital contribution. [I.E. the members are not liable for the partnerships debts]. This is common in LLP agreement!