LLP Partnerships

LLP Partnerships

LLP Partnerships mean limited liability partnerships. This form of organisation combines the informality of partnerships with the limited liability of incorporated companies. LLP Partnerships are legal in UK thanks to the enactment of the Limited Liability Partnerships Act 2000, The Limited Liability Partnerships Regulations 2001 and The Limited Liability Partnerships (Fees) (No.2) Regulations 2001.

LLP Partnerships can be formed by two or more persons for conducting a business. LLP Partnerships need to be registered with Companies House. The law requires two or more members of the LLP Partnership to be appointed as designated members. The designated members are responsible for fulfilling statutory obligations such as filing annual returns and subject to sanctions if they do not. LLP Partnerships also need to have a LLP agreement in place for addressing management issues.

A LLP Partnership is like a company without a memorandum or articles of association. LLP Partnerships, for instance, enjoy separate legal status like companies do. LLP Partnerships can own assets and enter into contracts. LLP Partnerships, however, do not have directors or shareholders like companies do. Instead, LLP Partnerships have members or partners, whose liability is limited. By contrast, the liability of partners in a traditional partnership extended to their personal assets such as house and other personal properties.

Advantages and Disadvantages of LLP Partnerships

The limited liability is the key advantage of LLP Partnerships. Another advantage is the management flexibility inherent in partnerships. LLP Partnerships, however, suffer from a few shortcomings. The mandatory disclosure of financial information is a disadvantage; particularly for accounting and legal firms, which have traditionally shied away from disclosing their earnings. The untried structure of LLP Partnerships also reduces their attractiveness in the short-term. Overall, however, the advantages far outweigh the disadvantages.

Not surprisingly, the response to LLP Partnerships has been encouraging. Legal firms have responded enthusiastically to the LLP Partnerships due to obvious reasons. LLP Partnership status protects the personal property of lawyers from negligence claims. The legal firms also seem to have overcome their initial apprehensions about making their accounts public.

So far, 14 of the top 50 legal firms in UK have switched over to the LLP structure. With top legal firms moving to the LLP structure, other legal firms have been emboldened to consider a conversion to LLP Partnerships. Reportedly, an additional 25 out of 50 top law firms are actively considering a switch over to LLP structure.

The accounting firms, which furiously lobbied for LLP Partnerships, are expectedly switching over to the new structure.So far, 20 out of the top 50 accounting firms have converted to the LLP structure. The enthusiasm for LLP Partnerships, however, is limited to large and mid-sized accounting firms. Smaller accounting firms are reluctant to switch over to the LLP structure due to lack of scale and exposure.

According to the Department of Trade and Industry, the total number of LLP Partnerships registered in Great Britain stood at 7,396 on March 31st 2004. The response to LLP Partnerships in UK has been encouraging without being overwhelming. The new structure has largely appealed to legal and accounting firms, looking to limit the liability of their partners. Other businesses, seeking limited liability, continue to opt for the company form of organisation. The possibility of LLP Partnerships appealing to a larger audience in the coming years seems unlikely.