An LLP, or limited liability partnership, is a form of partnership in which, unlike a traditional partnership, the individual partners have limited liability. An LLP, therefore, is closer to a limited company than to a traditional partnership. LLPs are governed by the Limited Liability Partnerships Act 2000.
In a traditional partnership, all the liabilities fall on the partners, not on the partnership, because the partnership itself does not have any distinct legal identity. However, an LLP is a legal entity in its own right, and is thus subject to its own liabilities. This means that the individual partners of an LLP (called “members”) are not liable for the debts of the entire LLP.
Each partner in a traditional partnership can individually find himself liable for all the debts of the partnership, whereas in an LLP each member is only liable to the extent that he has already contributed to the assets of the LLP.
The member’s liability is thus very similar to that of a shareholder of a limited company. It is not the liability of the LLP itself that is limited, rather it is the liability of the individual members that is limited.
An LLP is required to file much of the same information as a company with the Companies Register, including the filing of annual accounts. This means that the finances of an LLP are open to public examination, unlike those of a traditional partnership, which are not public information.
The members of an LLP do not have to be natural persons, but can be corporations.
The benefits of an LLP over a traditional partnership are clear – the individual members have limited liability in an LLP, whereas it is unlimited in a traditional partnership. What is less obvious is the difference between an LLP and a limited company. There are certain businesses which may not operate as limited companies (such as Solicitors), and they have no choice but to form LLPs if the partners wish to limit their liability. However, there can be benefits to other businesses in operating as LLPs. The most significant of these is that an LLP retains the flexibility of a traditional partnership with regard to the members, who can join and leave freely, and in certain circumstances can be removed from the LLP by the other members , unlike the shareholders of a company, who own a specific asset (their share), and can only leave if they sell the share (and it is generally difficult to remove a shareholder against their will).
The law sets out the rules under which an LLP functions, but many of these default positions can be changed by formal agreement between the members. Many of the default rules are likely to be undesirable; for example, they allow for profit to be shared equally between the members in all circumstances, and do not allow for expulsion of a member. An LLP will usually therefore require a limited liability partnership agreement to set out how the LLP will operate. This agreement will cover the following:
Healys Solicitors has extensive experience and expertise in advising on LLPs and drafting limited liability lartnership agreements. We take a realistic and commercial approach to a client’s needs, always ensuring that we understand the commercial imperative behind the LLP, in order to tailor the LLP agreement to best fit the client’s requirements.