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Characteristics of Limited Liability Partnership
A Limited Liability Partnership (LLP) is a legal person in the eyes of the law. It is a corporate body (Legislation.gov.uk). The UK law has given this type of business organisation an unlimited capacity. With this unlimited capacity, a Limited Liability Partnership is legalised to undertake the full range of commercial business activities. In the year of 1890, a Partnership Act was passed. This Act guides those individuals who want to form partnership for the purpose of doing commercial activity. But, in general, this Act will not applicable to an LLP. In particular, certain provisions of this Act may be relevant and applied to LLPs. Due to its corporate nature, like a structure of a company; some provisions of Partnership Act 1890 are not applicable to an LLP.
Characteristics of Limited Liability Partnership
At least two people are required to form a Limited Liability Partnership. The Limited Liability Partnership is a legal personality (Law society, 2007).They associate for the purpose of doing a lawful commercial activity with a view to earn profit. To become a legal person, the members of Limited Liability Partnership are required to provide their names to a document called an “incorporation document". In this document, name of Limited Liability Partnership, location and address of registered office, names and addresses of minimum two members must be mentioned in the incorporation document. After completing all these necessary legal requirements, the incorporation document must be sent to the registrar. Additionally, a declaration of compliance that Limited Liability Partnership satisfies the requirements of the Limited Liability Partnership Act 2000, should be sent to the registrar. Upon receiving the incorporation document, the registrar will ensure that all legal requirements are satisfied. After ensuring that, the registrar will issue a certificate of incorporation.
It is a legal requirement that the first members must sign an incorporation document (Corporate and business law UK). After signing that incorporation document, any new member can join the partnership by agreement with the existing members. The membership of a member would cease on his death. Additionally, the partnership dissolution or any agreement among partners would also cease the membership of a member. The members of partnership can decide the rights and duties of members by mutual consent and agreement. In case, the members are unable to agree on rights and duties, then, the partnership will be governed by Limited Liability Partnership Regulations 2001 (Corporate and Business Law UK). Also, each member acts as an agent of the Limited Liability Partnership.
The incorporation document must include the name of Limited Liability Partnership. The name must end with “Limited Liability Partnership, or llp or LLP".
Liability for Debts
The liability of a member of a Limited Liability Partnership is limited to the capital contribution (Duntop). If the Limited Liability Partnership goes into liquidation, and the liquidation creates debts that are required to be paid by the members of the Limited Liability Partnership, then, the liability of the members of the Limited Liability Partnership shall be restricted or limited to the capital contribution provided by the members. Also, the members are not under any legal requirement to contribute a specified amount for the creation of a Limited Liability Partnership. This right is given to the members that they themselves decide the amount for capital contribution. Additionally, the members are allowed to withdraw their capital contribution anytime. The law has authorised the members take and implement this decision.
Benefits of Limited Liability Partnership
The provision of limited liability
This is a significant benefit of Limited Liability Partnership. In the standard partnership, the members have unlimited liability. This means in case of liquidation, the members of standard partnership are required to contribute more than they have provided their capital contribution in the standard partnership until the final pound of debt is repaid. But, that is not the case with the partnership under the Limited Liability Partnership. Any debt liability in the event of liquation, the members are only required to contribute up to the capital they have provided in the Limited Liability Partnership.
Applicability of company-related regulations
The Limited Liability Partnership Regulations 2001 has incorporated the relevant sections of Companies Act 1985 (companies house), the Insolvency Act 1986, the Company Directors Disqualification Act 1986 and the Financial Services and Markets Act 2000 have appropriately modified to apply to the Limited Liability Partnership. With this extension and applicability of Companies Acts on the Limited Liability Partnership, this kind of partnership has become more attractive and better way of doing commercial activity or commercial business in comparison with the standard type of partnership.
Comparison with other business organisations
Limited Liability Partnership and Sole Properitership
To create a Limited Liability Partnership and continue doing business in this type of partnership, at least two or more than two persons or individuals are required. On the other hand, there is no such requirement for creating a sole properitership. One person or individual would be required to form a sole properitership.
For the members of Limited Liability Partnership, the debt liability is limited to the capital contribution. But, in sole properitership, the single owner may be required to repay more than the capital contribution or investment that he has made into business.
The owner of sole properitership has more business freedom than the members of the Limited Liability Partnership. The owner of sole properitership is at will to enter into a contract without taking into confidence anyone else. On the other hand, the members of Limited Liability Partnership are not at will to enter into a contract; they are required to consult with the other members of Limited Liability Partnership before going to sign a business contract.
Limited Liability Partnership 2000 and Partnership
The liability of the members of the Limited Liability Partnership is limited, and on the other hand, the liability of members of partnership is unlimited. The members of Limited Liability Partnership are required to pay liability up to the amount of capital contribution. But, the members of the partnership do not have this provision; they are required to contribute more than their capital contribution to repay the debts of the partnership. Every partner is jointly and severally liable for the debts and contracts of the patnership business.Even the members are required to repay the debts of partnership by providing money from other sources like their personal property can be used.
Limited Liability Partnership 2000 and Limited Partnership Act 1907
The Limited Liability Partnership 2000 does not require any member to pay more liability than the capital contribution that he has made in the Limited Liability Partnership. This rule is applicable to all the members of the Limited Liability Partnership. On the other hand, the partnership created under the rules of Limited Partnership Act 1907, requires a limited liability clause except the one member. Under the provisions of Limited Partnership Act 1907, at least one member is required to take full or unlimited liability for the debts of partnership. Additionally, the members of the Limited Liability Partnership have right to withdraw their capital contribution whenever they want to do. But, the members of the Limited Partnership; are not allowed to withdraw their capital contribution in the ordinary course of events.
Limited Liability Partnership and Company
Both Limited Liability Partnership and company are registered as a separate legal personality. Both have individual legal status. Both can sue and both can be sued. Furthermore, the members of Limited Liability Parternship have partners to run the business of partnership. On the other hand, company has shareholders, who own the company, and directors, who run and manage the day to day affairs of the company. Also, the members of Limited Liability Partnership have limited liability that is limited to the capital contribution. The sharholders of company also have limited liability to the shares they own, in case the company is going to be liquidated.
The partners of Limited Liability Partnership are required to pay income tax and capital gains tax; on the other hand, corporation tax is paid by company. Designated members of the Limited Liability Partnership are required to manage the administrative matters; on the other hand, directors and other management members are required to manage the administrative matters of the company.