Partnership and LLP formation - Registration process for LLPs

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Overview

Limited Liability Partnerships (LLPs) represent a significant business structure in UK company law, combining elements of traditional partnerships and limited companies. For the SQE1 FLK1 exam, a detailed understanding of LLP establishment, registration, and legal considerations is necessary. This topic is indispensable for key advisory skills in commercial law practice, requiring candidates to showcase thorough knowledge of business entity creation, regulatory compliance, and the legal ramifications of various organizational structures.

Legal Framework of LLPs

The creation and operation of LLPs in the UK are primarily governed by two main pieces of legislation:

  1. The Limited Liability Partnerships Act 2000 (LLPA 2000)
  2. Relevant provisions from the Companies Act 2006

Corporate Personality and Limited Liability

LLPs have a distinct legal personality, separate from their members, as established in s.1 LLPA 2000. This principle, rooted in the landmark case of Salomon v A Salomon & Co Ltd [1897] AC 22, applies equally to LLPs. Key points include:

  • The LLP can own property, enter into contracts, and sue or be sued in its own name.
  • Members' liability is limited to the amount they have agreed to contribute to the LLP if it is wound up (s.1(4) LLPA 2000).

It's important to note that this protection is not absolute. In cases of wrongful or fraudulent trading, as defined in ss.214 and 213 of the Insolvency Act 1986 respectively, members may face personal liability.

Designated Members

LLPs must have at least two designated members (s.8 LLPA 2000), who carry additional responsibilities:

  • Filing annual accounts and confirmation statements with Companies House (s.854 Companies Act 2006).
  • Appointing an auditor if required (s.485 Companies Act 2006).
  • Acting on behalf of the LLP if it is wound up or dissolved.

Failure to comply with these duties can result in personal liability for the designated members, as highlighted in the case of Cheung v Cheung [2019] EWHC 1330 (Ch).

LLP Registration Process

The registration of an LLP involves a series of statutory steps, adherence to which is key for valid creation.

Step-by-Step Registration Guide

  1. Name Selection and Approval

    • The proposed name must comply with s.53 Companies Act 2006, including the suffix "LLP" or "Limited Liability Partnership."
    • It must not be the same as or too similar to an existing company or LLP name.
    • Certain words require permission from the Secretary of State (e.g., "Royal," "Institute").
  2. Completion of Form LL IN01

    • This form requires:
      • The LLP's proposed name
      • The intended registered office address (which determines the LLP's "nationality" within the UK)
      • Details of all members, including at least two designated members
      • A statement of compliance confirming adherence to legal requirements
  3. Submission to Companies House

    • The completed form must be submitted along with the prescribed fee.
    • Electronic submission is possible and often preferred for expedited processing.
  4. Certificate of Incorporation

    • Upon successful registration, Companies House issues a Certificate of Incorporation.
    • This certificate is conclusive evidence of the LLP's creation (s.3(1) LLPA 2000).

LLP Agreement

While not mandatory for registration, an LLP agreement is important for governing internal relations. In the absence of such an agreement, default provisions under the Limited Liability Partnerships Regulations 2001 apply. Key considerations include:

  • Profit sharing arrangements
  • Management structure and decision-making processes
  • Procedures for admitting or expelling members
  • Dispute resolution mechanisms

The case of Flanagan v Liontrust Investment Partners LLP [2017] EWCA Civ 985 highlights the importance of clear, well-drafted LLP agreements in preventing disputes.

Comparative Analysis: LLPs vs Traditional Partnerships

Recognizing the differences between LLPs and traditional partnerships is important for the SQE1 FLK1 exam.

FeatureTraditional PartnershipsLLPs
Legal StatusNo separate legal personalitySeparate legal entity
LiabilityJoint and several liability for partnersLimited liability for members
GovernancePartnership Act 1890LLPA 2000 and Companies Act 2006
FormalitiesMinimalAnnual filing requirements
TransparencyNo public filing of accountsPublic filing of accounts required
TaxationPartners taxed individuallySimilar to partnerships, but with more complex reporting

Regulatory Compliance and Ongoing Obligations

LLPs face ongoing compliance requirements that are key for maintaining their status and limited liability protection.

Annual Filing Requirements

  • Annual Accounts: Must be prepared and filed with Companies House within 9 months of the financial year-end.
  • Confirmation Statement: An annual update of key information about the LLP, required under s.853A Companies Act 2006.

Disclosure of Member Information

  • LLPs must maintain a register of members, including their names and addresses.
  • Any changes in membership must be reported to Companies House within 14 days.

Auditing Requirements

  • LLPs may be exempt from audit if they meet certain criteria, such as having a turnover below £10.2 million and total assets below £5.1 million.
  • Non-exempt LLPs must appoint an auditor and file audited accounts annually.

Examples and Applications

  1. Professional Services LLP
    A group of solicitors decides to form an LLP for their legal practice. They must carefully consider:

    • The allocation of management responsibilities among designated members.
    • The structure of their LLP agreement, particularly regarding profit sharing and decision-making processes.
    • Compliance with Solicitors Regulation Authority (SRA) requirements alongside general LLP obligations.
  2. Cross-Border LLP
    An international consulting firm establishes a UK LLP with members from various countries. Key considerations include:

    • The tax implications for non-UK resident members.
    • Ensuring compliance with both UK and foreign regulatory requirements.
    • Structuring the LLP agreement to account for different jurisdictional expectations and practices.
  3. LLP Dissolution Scenario
    An LLP faces financial difficulties and considers dissolution. The members must address:

    • The process of voluntary striking off under s.1003 Companies Act 2006.
    • Potential personal liability if the LLP is insolvent and they have engaged in wrongful trading.
    • The distribution of assets and settlement of liabilities in accordance with the LLP agreement and statutory provisions.

Conclusion

An in-depth understanding of LLP establishment and registration processes is essential for success in the SQE1 FLK1 exam. Candidates must demonstrate thorough knowledge of the legal framework governing LLPs, including key statutes like the LLPA 2000 and relevant provisions of the Companies Act 2006. The ability to compare LLPs with traditional partnerships, analyze the implications of separate legal personality, and address the complexities of regulatory compliance is vital. Moreover, practical application of these concepts to real-world scenarios showcases the level of skill expected in professional legal practice. As future solicitors, thorough familiarity with LLP structures equips candidates with the knowledge to provide informed advice on business entity selection and compliance issues in diverse commercial contexts.

Key points to remember:

  1. LLPs combine features of partnerships and limited companies, offering limited liability and flexibility.
  2. The registration process involves careful name selection, completion of Form LL IN01, and submission to Companies House.
  3. LLPs have ongoing compliance obligations, including annual filings and maintaining up-to-date member information.
  4. LLP agreements, while not mandatory, are important for governing internal relations and preventing disputes.
  5. Understanding the distinctions between LLPs and traditional partnerships is essential for providing sound legal advice.
  6. Practical application of LLP concepts to various business scenarios is critical for exam success and professional practice.