Limited Liability Partnerships: a new way forward?

This blog is not intended or designed to provide legal advice. The content on our blog is provided for general information only. It is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content on our blog.

What is an LLP?

The popularity associated with a private limited company can be attributed to the availability of limited liability to the shareholders. However, due to the public disclosure requirements alongside the statutory regime that a company must comply with it makes the running of a company very complex. Because of these reasons a traditional partnership is attractive but the major drawback of a partnership is that each partner has unlimited liability and could be exposed to having to meet and debts and liabilities of the partnership should it fail. This makes a partnership essentially unappealing.

These things fuelled the introduction of limited liability partnerships (LLPs) and the Limited Liability Partnership Act 2000 which came into force in 2001.  An LLP is fundamentally a hybrid between a company and a partnership.

An LLP is similar to a company in the sense that it exists as a ‘legal person’ independent from its members, can enter into contracts just like a limited liability company and, importantly, offers limited liability. However, in other ways an LLP is more like a traditional partnership.  For tax purposes an LLP is treated as a partnership and members’ profits are subject to income tax individually. An LLP also offers organisational flexibility like a traditional partnership. This flexibility promoted by an LLP has made it a desirable business medium.

What are the advantages of becoming an LLP?

Efficiencies

An LLP appears appealing because of its hybrid structure between a limited company and a Partnership. It is much easier to change the structure, management and distribution of profits within an LLP.

With regards to duties of the members in an LLP there must be at least 2 designated members who have duties to adhere to. The Limited Liability Partnership Act 2000 imposes responsibilities on designated members which include:

  • Appointing an auditor if necessary
  • Signing off an LLP’s accounts and filing them with the registrar of companies
  • Ensuring that an annual return for an LLP is filed with the registrar of companies
  • Ensuring that an LLP complies with the statutory filing requirements

These responsibilities are essentially the same as the responsibilities imposed on directors of a company. However, directors also have other statutory duties to comply with in addition. These duties are owed by the director to the company. These general duties are contained in the Companies Act 2006 and they include:

  • A duty to act within their powers;
  • A duty to promote the success of the company;
  • A duty to exercise independent judgement ;
  • A duty to exercise reasonable care skill and diligence;
  • A duty to declare any interest in a proposed transaction;
  • A duty not to receive any benefits from a third party without the company’s consent; and
  • A duty to avoid conflicts of interest.

In contrast the duties of the members of an LLP are governed by an LLP agreement (if there is one), This is a private document and the members therefore have more freedom to regulate their own affairs. An LLP is not required to have an LLP agreement though and if there is no express agreement certain default provisions will apply under the LLP Regulations.  Arguably though these default rules are not as extensive or onerous as the general duties directors owe.

Flexibility

As noted above an LLP provides the opportunity for flexibility around its internal rules and perhaps has more freedom in such decision making than a company.

Ease of establishment

An LLP can be quickly incorporated same day incorporation is even possible. Essentially to establish an LLP a minimum of 2 members being in business with a view to profit is needed.

An LLP need not file an LLP agreement at Companies House as to how the business will operate i.e. its internal rules. It is not a necessary requirement to have a written document between the members but it is beneficial otherwise default provisions in the LLP Regulations will apply. However, a Company must file the relevant articles of association at Companies House. Arguably it could be a disadvantage that there is no ‘model’ LLP agreement as  this means it will need to be drafted from scratch and could result in greater costs to set up as an LLP in comparison to a company.

Both an LLP and limited company must submit documentation to Companies House upon incorporation including relevant registration forms and in the case of a Company further details of the how the Company is intended to run i.e. the articles of association.

The incorporation fees for incorporating at Companies House are the same for both companies and LLPs.

Limited Liability of Members

The main attraction to an LLP compared to traditional partnerships is the limited liability the members will obtain. The LLP is a separate legal entity, so its members will not be liable for the debts of the LLP except in certain circumstances where the LLP becomes insolvent.

Many new businesses may choose to take this route of an LLP as it provides a safe option of limited liability alike a limited company however an LLP allows more flexibility in terms of how the internal affairs of the business are organised.

The Companies Register Activities Report for 2014/15 showed that there are currently 3,313,430 Limited Companies and 59,996 LLPs registered within the UK these figures were taken from a snapshot on 31st March 2015. This highlights the fact that Limited Companies are still the most popular business medium however LLPs clearly have significant appeal as a choice of business ownership. It will be interesting to see if significant numbers of LLPs continue to be incorporated, although only time will tell.

The links below provide further information regarding an LLP:

https://www.gov.uk/set-up-and-run-limited-liability-partnership/overview

https://www.gov.uk/business-legal-structures

This blog poBeth Lst was written by Beth Liddle. Beth is a MLaw student working in a business and commercial firm within the Student Law Office. On graduation she hopes to secure a training contract within a commercial firm.  In the meantime she plans to undertake paralegal work and also pursue her work at Citizens Advice Bureau to develop key skills she will be using in practice.

 

 

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Business and commercial students graduate in style!

It was great to see so many of the SLO’s Business and Commercial students at the Law Congregation on Thursday 9th July. Graduation is always the highlight of the academic year and it is was a pleasure to celebrate this special day with our former students and their friends and families. It was also exciting to hear about our students’ other recent achievements. As well as brilliant degree results, many of our students were celebrating other successes including awards and travel scholarships, work placements and job offers. Victoria and Elaine, the Business and Commercial firm supervisors, would like to say congratulations to everyone who graduated and to thank them for their hard work over the course of the year.

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SLO supervisor Victoria Gleason with graduating students Connor Cartledge and James Warnock

For those graduates who have not done so already, remember to sign up to the Alumni networking platform, a great way to keep in touch with other graduates and Law School staff.

This blog post was written by Victoria Gleason. Victoria is a Senior Lecturer and Student Law Office Supervisor at Northumbria Law School. She teaches in the Student Law Office, where she supervises students who provide free legal advice to local businesses. Victoria also teaches on a range of other undergraduate and postgraduate modules. Prior to joining the University Victoria trained and worked as a solicitor at commercial firm Ward Hadaway.

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10 TED talks to make you commercially aware

Commercial awareness is both a flexible and elusive term.  Perhaps it could be defined as the following:

“an awareness of business trends, strategies , successes, failures, threats, opportunities , events and a knowledge of entrepreneurship.”

For commercial lawyers, possessing the quality above is essential. A lawyer in a commercial context must have a firm grounding in both the legal and business marketplaces. An awareness of the competition and the growing trends within the legal sector is critical for a firm that wants to keep pace. Equally, as every client is a business, a solicitor must have a thorough knowledge of the relevant industry so that he can offer relevant, effective, and future-proof advice to a client.

A fact that employers often stress also emphasises the importance of commercial awareness; a law firm is a business. Therefore, an understanding of what makes a business successful, and the challenges it may face along the way, is an important tool for any prospective solicitor.

Many students find it difficult discovering ways to become commercially aware, many reaching straight for the business sections of the newspaper or going online to read the latest commercial and legal bulletins. However, there are much easier ways. Podcasts, blogs and apps perhaps make it easier than ever before to passively absorb business-sense. Less tedious than a broadsheet and something that you can tackle on the way to University.

A similar, and equally brilliant, untapped resource are TED talks. TED talks are video lectures, ideas and presentations. Better yet, TED talks are a great resource for picking up a subtle, and perhaps deeper understanding of commercial awareness. Listed below are ten great talks, focused on a range of general commercial issues, to get you started and send you on your way to becoming a guru of the commercially aware.

  1. Joseh Pine – What consumers want
  1. Margaret Steward – How YouTube thinks about copyright
  1. Ray Anderson – The business logic of sustainability
  1. Ricardo Semler – How to run a company with (almost) no rules
  1. Drew Curtis – How I beat a patent troll
  1. Harish Manwani – Profit’s not always the point
  1. Michael Porter – Why business can be good at solving social problems
  1. Nigel Marsh – How to make work-life balance work
  1. Yves Morieux – As work gets more complex, 6 rules to simplify
  1. Phillip Evans – How data will transform business

This blog post was written by James Warnock. James is currently studying the M Law degree at Northumbria University and is working as a student advisor for business and commercial law within its Student Law office. On graduation he hopes to secure a role which will allow him to apply the law-based skills he has acquired within a commercial context, whether this is in-house, in private practice or in a wider business context. He aspires to work alongside unique and passionate forms of enterprise.

James Warnock

Sole trading!

Neil Robinson (The Custom Underground), Elaine Campbell & Natalie Baldwin (Northumbria Law School)

Neil Robinson (The Custom Underground), Elaine Campbell & Natalie Baldwin (Northumbria Law School)

We’re incredibly lucky to be able to work with creative entrepreneurs at the Student Law Office.  The energy and inventiveness of the creative sector captures the imagination of our students, who are thrilled to be able assist those businesses with free advice and documentation.

One such business is The Custom Underground which was launched in April 2013 by Neil Robinson, creating and designing bespoke shoes.

According to Neil, the business was born from a ‘moment of madness’ after deciding to doodle on a pair of plimsolls he was about to throw out. Since then it has quickly caught the eye of consumers, including a number of UK celebrities, and due to its soaring popularity he expanded his range to include t-shirts, hats and jackets as well as unique, one-off products.

With a growing consumer base seeking his bespoke products, Neil was keen to develop a tailored set of terms and conditions for his customers and was referred to the Student Law Office at Northumbria University. We were only too happy to help.

The entrepreneur, who lives in Stockton-On-Tees, said: “The Custom Underground has been really successful in quite a short space of time. I have had orders from the cast of The Only Way is Essex, members of dance group Diversity, and prominent UK DJs which has been amazing and really helped raise the profile of my work.

“The nature of my business, with bespoke and made-to-order products, meant I needed tailored guidelines so I was referred to the Student Law Office at Northumbria University.

“The help I received from the team there was fantastic. They understood exactly what I was looking for and they were great to work with, helping me to create a set of terms and conditions that covered everything from personalised designs and intellectual property to pricing, payment, returns and refunds.”

He explained: “I am really grateful to the Student Law Office – until recently I didn’t even realise this type of service existed. It’s brilliant that it can help people like me who are just starting out and don’t have a huge amount of money to pay for these types of services. I would certainly recommend it and I won’t hesitate to get in touch in the future as my business takes off.”

He continued: “I am still a one man band at the moment – everything about the business I do myself, including the website, orders and the designing of the products. I live with my partner and our two-and-a-half year old son so there is not much time for sleep.”

The custom and online elements to Neil’s business meant that standard terms and conditions wouldn’t offer the appropriate cover. More detailed and in-depth terms were required and it was important that we worked with Neil to ensure they were robust while fitting with the overall style of his website. Neil worked with our student trainee, Natalie Baldwin, who qualifies as a solicitor in September. We are thrilled that Neil was happy with the service we offered and we are looking forward to working with him again in the future.

For more information about our work with The Custom Underground, please visit: https://www.northumbria.ac.uk/about-us/news-events/news/2014/07/bespoke-law-service-for-bespoke-north-east-business/

Welcome to our blog!

Welcome to the first blog post of wetakecareofbusiness!

This blog is brought to you by the students and supervisors of the Business and Commercial firms at Northumbria University’s award winning Student Law Office.

Over the coming months, we’ll be telling you more about the work of the Student Law Office and what it is like to be a student involved in a clinical legal education programme. We’ll be providing you with some hints and practical tips about key areas of company, commercial and intellectual property law and posting any other information we think might be of interest.

We hope you enjoy reading and interacting with our blog. Please keep an eye out for future posts. We hope to start posting regularly from August 2014 onwards.