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Checklist: matters for a limited liability partnership (LLP) agreement

Snapshot

We have set out below a checklist of issues to consider when drawing up an LLP agreement.  Planning in advance and working through the checklist you can manage the regulation of your LLP effectively. 

Overview

back to topRelationship between members of the LLP

  • Who is to be responsible for decision making?
  • Management involvement. Will there be a management board? If so, what is the constitution of the board?
  • What are the voting procedures?
  • How do new members join?
  • Is there a power to expel members?
  • Are there any specific terms agreed as to the termination of membership from the LLP?
  • Has a notice provision been agreed?
  • Are there any specific obligations or restrictive covenants required?
  • Is there a specific retirement age required?
  • Is there a requirement for a member who chooses to resign as a designated member to remain as an ordinary member?
  • What is the division of shares in capital, profit and losses to be?
  • Indemnity for payments and personal liabilities
  • How will partners be remunerated?
  • Duty to account for profit arising from a competing business?
  • Duty to account for benefits derived from transactions relating to the LLP?
  • Availability to the members of books and records
  • Is the right to claim unfair prejudice to be excluded?

back to topThe agreement


An Agreement is recommended setting out the powers of the LLP and the rules regulating the actions of the members of the LLP. The agreement is not mandatory and not required to be filed at Companies House.
The Agreement should contain at least the following :-

  • The name of the LLP;
  • Registered office
  • The activities of the LLP;
  • The method for appointing new members;
  • The system for removing problem members;
  • The system for dealing with deceased members
  • How the capital cost is reimbursed when a member dies or leaves the LLP;
  • When and how profits are divided;
  • How much is contributed to the debts of the LLP on winding up;
  • Names of members on incorporation;
  • Minimum and maximum number of members;
  • Date of commencement of the agreement;
  • Outline of the duties of members;
  • Insurance and pensions;
  • Notice provisions to members;
  • Procedure at meetings;
  • Votes of members;

Without a written Agreement members may fall into disagreement.

From October 2009 the home addresses of members will not need to be filed at Companies House.  The members can elect to use the registered office as the home address. 

back to topInformation Required on incorporation

You will need to provide the following information to Companies House on incorporation:

  • The full name of the LLP which must include LLP or Limited Liability Partnership at the end. 
  • The registered office
  • Details of the full address must be provided and it must stated to be located in ‘England and Wales', ‘Wales' or ‘Scotland.'
  • If there is punctuation in the name it must be stated whether this is to be included in the Incorporation Certificate. A covering letter will be required to clarify this.
  • The name, address and date of birth of each member is required
  • There must be at least two equity members
  • There must be two members who are responsible for regulatory matters such as filings at Companies House, tax, VAT, admission of new members.
  • The form must be signed by all members to confirm their consent to act.

Limited liability

The liability of the members is limited to the amount the members agree to contribute on the winding up of the LLP. The regulations provide no guide.

Perpetual succession


An LLP ceases to exist only if it is formally wound up or struck from the Companies Register by Companies House. Members can leave the LLP for whatever reason and the LLP continues.

Protection of the name


Incorporation ensures that no other LLP or company can be registered with the same name.

Governing structure


The Agreement of the LLP should clearly set out the powers and regulations with which the LLP and the members must comply. The agreement is not mandatory.

Ease of Transfer in and out


There is no penalty should the business cease to operate under the LLP.


Taxation


The taxation consequences will require advice.  Usually there is no tax charge upon transfer from a partnership to an LLP.  The members of the LLP will be taxed as if they were self-employed.

Capital


Every LLP must have two equity members. They each agree in accordance with the written agreement to contribute an amount to the LLP. This contribution determines the level of ownership of the LLP. There are no default provisions in this regard and where there is no agreement members will need to discuss and agree. The capital would normally be signified in pounds sterling. Each LLP must decide what are its financial needs and arrange for this to be spread across the members.

Officers


Management of the LLP is the responsibility of the members of which there must be at least two. The members may be corporate and resident anywhere in the world. The members are not only the managers of the LLP but also the owners.

Designated members


At least two of the members must be notified to Companies House as the designated members. These designated members are responsible for the compliance of the company and act rather like the secretary of a limited company. If the LLP does not notify Companies House as to who are the designated members, all members are deemed to be designated. The compliance responsibilities include the appointment of auditors, acting as signatory to the accounts, making returns to Companies House.


back to topComparison between an LLP and a company

 

 

Limited Company

Limited Liability Partnership

REGULATIONS

Companies Act 2006

LLP Act 2000

  

LIABILITY

Limited to amounts unpaid on shares

Limited to amount of capital agreed to be contributed in the event of winding up

CONSTITUTION

Memorandum and articles of association govern the power to act and form the rules of the company- must be filed at Companies House

 

STATUS

Has a separate legal personality-can own land, sue, be sued etc in its own name

Has a separate legal personality-can own land, sue, be sued etc in its own name

CAPITAL

The minimum share capital of a company is 1 p (public company- £50,000) and for a private company, only one share needs to be issued (private companies limited by shares). Shares may be divided into different classes and different denominations with varying rights.

No regulations on capital.Capital is not divided into shares

PROFITS

May pay salaries and dividends from distributable reserves

Members may draw on their profits within the terms of their agreement

TAKING OUT CAPITAL

Not generally permitted although companies may be able to purchase or redeem their own shares

Depends on agreement

MANAGEMENT

Private company requires only one director (two for a public company). Directors do not have to be members. Directors can be corporations (although at least one must be a natural person)

At least two equity members needed, who carry out the management function. Members can be corporations

COMPANY SECRETARY

A Company Secretary is not required for a private company (a public company must have a company secretary)

No Secretary needed Designated members carry out the compliance function

MEMBERS

Companies limited by shares or guarantee require only one member. Public and unlimited companies require two

Requires at least two members

DECISIONS

The Companies Act specifies majorities required for many resolutions

LLP Act sets out some majorities, otherwise unanimous consent required for most decisions unless agreement specifies otherwise

MEETINGS

The Companies Act sets out the requirements for meetings and requires an AGM (although private companies no longer need to hold one)

No regulations on meetings

INVESTMENT

Outside investors may contribute share capital (and take an equity stake without becoming a director) or loans

Outside investors can only contribute loan capital. Only a member can take equity stake

BORROWINGS

Debentures and fixed and floating charges

Same

WRITTEN RESOLUTIONS

Members may pass resolutions by means of written resolutions

Depends on members' agreement

DISLOSURE

Accounts must be filed at Companies House. Annual return, Notice of change of director/secretary/registered office;mortgages;and various other returns

Accounts must be filed at Companies House. Annual return, Notice of change of director/secretary/registered office;mortgages;and various other returns

AUDITORS

Need not always have auditors

Need not always have auditors

TAXATION

Corporation tax applies

Members taxed as individuals;no corporation tax

 

 

 

This paper is designed to provide a summary of the issues addressed. Therefore, it is not intended as a detailed commentary on the relevant law and any comments made should not be acted upon without first taking specific legal advice.

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