Can A Limited Company Be A Member Of An LLP?

A Limited Liability Partnership (LLP) is an alternative type of business structure which is popular with professionals who normally operate as a partnership, such as solicitors, doctors, and architects but whose members require limited liability. In this article, can a limited company be a member of an LLP, we take a look at the viability of this, the fundamental steps that need to be taken and the process involved.

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What are the differences between an LLP and a Limited Company?

An LLP does not have any directors, shareholders or guarantors and has members instead. These members are often referred to as “partners”. There must be at least two members to register an LLP and these designated members have more responsibilities (eg keeping company accounts), but there is no upper limit to the number of members permitted.

LLPs are governed by the Limited Liability Partnership Act 2000 and The Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, rather than the Companies Act 2006.

LLPs are taxed as partnerships, meaning they are not liable for corporation tax but each member is personally responsible for paying Income Tax and National Insurance on their individual profit.

Can a Limited Company be a member of an LLP?

Yes, a limited company can be a partner in an LLP.

The limited company would pay corporation tax on its profits and then the profits could be withdrawn as dividends.

Responsibilities of designated members

Designated members have more responsibilities than ordinary members and must:

• Register the business for Self Assessment with HMRC – you must also register separately as an individual
• Register the partnership for VAT if you expect your business’s sales to be more than £85,000 a year
• Appoint an auditor if needed
• Keep accounting records
• Prepare, sign and send annual accounts to Companies House

send a confirmation statement (previously annual return) to Companies House.

What are the benefits of an LLP ?

There are a number of benefits of setting up an LLP and these can include:

• LLP profits are shared between all members.
• The method of taxation for LLPs allows for an increased level of tax transparency, in addition to and allowing members to remain separate.
• You can appoint another company (termed as a ‘corporate body’) to be a member of an LLP. Any corporate members would be liable for corporation tax rather than Income Tax.
• LLP members can be based anywhere in the world – there is no requirement for members to be UK residents.

What is the process of Forming a limited liability partnership?

There are precise provisions for registration of an LLP, which are not dissimilar to those for creating a new limited company. However, you cannot buy an “off the shelf” limited liability partnership. The original documents have to be prepared with the names of the first set of members.

At least two people “carrying on a lawful business with a view to profit” must subscribe their names to a document called an “incorporation document”.

The incorporation document must be delivered to the Registrar of Companies at Companies House.

A statement must also be delivered to the Registrar that there has been compliance with the requirement that at least two persons, associated for the purpose of carrying on a lawful business with a view to profit, have subscribed their names to the incorporation document.

The statement must be made by a subscriber to the incorporation document or a solicitor engaged in the formation of the LLP.

The incorporation document must include this information:

• The name of the business
• Whether the registered office is to be situated in England and Wales, (in Wales or in Scotland, the address of the registered office)
• The name and address of the persons who are to be members on incorporation
• Whether some or all of the members are to be designated members

Do I Also need to create a partnership agreement?

Partners in an LLP are not obliged to enter into a formal partnership agreement. In practice, however, they will almost certainly get together to decide on the structure and regulation of all aspects of their business, in just the same way as prospective partners in a traditional partnership.

The agreement they make is binding on them after the LLP has been registered.

The agreement itself is not registerable and so remains confidential.

If there is no agreement, or the agreement makes no mention of a specific point, then formal default provisions apply in much the same way as the application of the default provisions of the Partnership Act 1890.

How we can help

We have a proven track-record of advising on the set-up of LLPs. We will guide you through the process and ensure all checks are carried out swiftly and efficiently and we firmly believe that with the right solicitors by your side, the entire process will seem more manageable and far less daunting.

How to Contact our Corporate Solicitors

It is important for you to be well informed about the issues and obstacles you are facing. However, expert legal support is crucial in terms of reducing risk, saving you money and ensuring you achieve a positive outcome.

To speak to our Corporate solicitors today, simply call us on 0345 901 0445, or allow a member of the team to get back to you by filling in our online enquiry form. We are well known across the country and can assist wherever you are based. We also have offices based in Cheshire and London.

Authored by Ben Posted in Corporate, News Tagged as