Considering converting to a Limited Liability Partnership?

If you operate through a traditional partnership you may be considering converting it to a limited liability partnership (LLP).

LLPs are corporate bodies formed under the Limited Liability Partnerships Act 2000 (not to be confused with Limited Partnerships which are governed by the Limited Partnerships Act 1907).

An LLP may be attractive because, usually, their members are not personally responsible for the LLP’s liabilities. Of course, much like a limited company, there are circumstances when members will incur personal liability e.g. when they carry on trading and incurring debts when they know (or ought reasonably to know) they are insolvent. However, wrongdoing aside, LLPs should offer their members protection against ‘losing the house’.

There are various issues to consider before you decide if an LLP is right for you. As a first step, it makes sense to take financial/tax advice on any proposed new trading structure. Your accountant should be able to help you with this. Another thing to consider is that there is more formality and less trading privacy when you run an LLP. For example, an LLP must publish its annual accounts. This is because limited liability comes at the cost of letting those dealing with the LLP decide if it’s worth the risk. Converting to an LLP can also impact on existing contracts, authorisations and banking facilities. We have a checklist of legal issues to run through if you are considering converting your partnership to an LLP.

Once a decision has been made then there are legal hoops to jump through.

The LLP should be incorporated.

Most LLPs also their own (private) LLP Agreement. This Agreement will set out how the LLP will be run, how decisions are made, how profits are shared and how members join and leave. There’s lots of flexibility around what can be put in an LLP Agreement and they can usually be tailored to your needs.

The business and assets of the existing partnership should be formally transferred to the LLP. This is usually done using a Business Transfer Agreement. The Agreement will identify the assets to be transferred and the extra steps, if any, needed to perfect the transfer any of those assets. Again, we can help you with the process.

For more information please contact Victoria Spellman.