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LLPs and Partnerships
If you are entering into a limited liability partnership (LLP) or any other form of business partnership, the expert team at JMW will work with you to discuss your bespoke requirements to ensure the agreement best reflects your intentions. We are highly experienced in deals of this type and can provide your business with certainty and help to prevent costly litigation should things go wrong.
Contact the corporate team at JMW today and find out more about the services we offer and how we can help with your LLP or partnership. Call us on 0345 872 6666 or complete our online enquiry form and we will get back to you as soon as we can.
Operating as a Business or LLP
Entering into a partnership occurs automatically whenever two or more people set up in business together with a view to making a profit. An LLP is a relatively new form of business model that shares many of the features of an unlimited partnership, but offers limited personal liability for the debts and liabilities of the business, as the LLP is a distinct legal entity.
If you are operating in business as a partnership or an LLP or if you intend to do so, it is crucial that the agreement between the business partners is set out in a formal partnership agreement/LLP agreement. In the absence of such an agreement, UK law will impose certain draconian provisions that are often unintended and unsuitable for your business.
Setting Up an LLP
Since the Limited Liability Partnerships Act 2000 came into force, the creation of LLPs has offered traditional unincorporated partnerships a new way to organise their business structure with reduced personal responsibility for its debts.
Unlike regular partnerships and sole traders, the LLP itself, and not the individual people involved, is responsible for any debts it accrues. Any two or more people who want to set up a profit-making business together can form an LLP. Companies and other LLPs can also be members of an LLP.
When first established, HM Revenue and Customs (HMRC) will need to be informed of the status of the business and an annual Partnership Tax Return and Statement will need to be completed by a nominated member. Although that person will have official responsibility for the return, all of the members will be jointly liable for any penalties that result from it being submitted late or incorrectly.
Profits from the business are shared among the members of the LLP and, as individual members will be self-employed, they need to be registered with that status and will be responsible for paying their own income tax. However, unlike limited companies, the LLP does not have to pay corporation tax. Companies that are LLP members will have to pay corporation tax on their profits from the LLP.
Tax, VAT and PAYE for LLPs
As with other businesses, where applicable, the LLP will have to be registered for and administer VAT and PAYE. With its administration being akin to running a company, and more complicated than that of a sole trader or partnership, the advice of a corporate solicitor during the set up of a business will be invaluable, ensuring all legal requirements have been and continue to be met.
At least two members of an LLP have to be registered as 'designated' members and have a number of legally-defined reporting responsibilities to Companies House. These include ensuring annual accounts and returns are properly signed and delivered and appointing auditors if necessary.
How members divide rights, responsibilities and profits from the business will be set out in a members agreement, and it is advisable to consult an experienced corporate lawyer to draw up the agreement and ensure the interests of all individuals are protected.
A members agreement is not obligatory; however, once it has been agreed and signed by the members, it becomes a legally binding agreement on all the parties.
If an agreement is not drawn up, the LLP will be governed by the measures set out in the Limited Liability Partnerships Act 2000 and these measures are unlikely to cover all the aspects of how the members wish to run the business. For example, where an LLP operates without a members agreement, each member is automatically entitled to an equal share of the profits (and losses). This principle applies regardless of the LLP's individual situation.
A formal agreement allows the members to agree to split the profits in accordance with specific profit sharing arrangements, and can therefore reflect circumstances such as part-time working, years of service or amount of investment. When a corporate solicitor is asked to prepare a members agreement, he will consult the members about their exact requirements and incorporate these as bespoke terms of agreement.
A formal members agreement would also cover many issues that arise in the life of an LLP, such as retirement, death, holidays, admission of new members and expulsion. Other provisions are likely to include the amount of any capital contributed by each member to the business and the division of work and management responsibilities between the members.
Why Choose JMW?
The corporate team at JMW has extensive knowledge of partnership law and will work with you to understand your requirements and make sure that any deal is in your very best interests. We pride ourselves in working in partnership with our clients and getting to know their business, and can provide you with a well-drafted, detailed partnership/LLP agreement that will give you peace of mind that everything is in order.
If you are considering setting up an LLP or a partnership, JMW can assist you with:
- LLP members agreements
- Partnership agreements
- Forming the LLP
- Converting your existing partnership into an LLP or limited company
- Resolving disputes
- Alternative business structures
- Admission of new LLP members or partners leaving the LLP or partnership
- Dissolution of LLPs or partnerships and liabilities of members on termination of an LLP or partnership
- Status of members/partners and employment law rights
- Enforceability of restrictive covenants
- Cross-option insurance agreements
JMW specialises in providing advice on all aspects of LLPs and members agreements. Our corporate team is able to draw upon the combined skills of the firm's partners in other fields, such as employment law, intellectual property law and commercial property law in order to provide any of the parties to a limited liability partnership with a broad range of comprehensive, commercially practical, added-value legal advice.