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United Kingdom

Introduction of Limited Liability PartnershipsLandwell, London

The Limited Liability Partnerships Act (the Act) 2000 received Royal Assent on July 20 2000, and is expected to come into force in early 2001.

This law creates an entity which will require banks and others dealing with Limited Liability Partnerships (LLP) to review their procedures and introduce new credit/ lending guidelines.

The Act has created a hybrid entity, being neither a company nor a partnership, to be known as an LLP. An LLP will be a corporate body with unlimited capacity to undertake the full range of business activities which a partnership can undertake, but the liability of the members (they are not called partners) will be limited to contributing to its assets in the event of it being wound up. In the event of any loss arising from a wrongful act or omission by a member, liability is limited to the LLP and the individual member. Innocent members are protected from claims.

In order to incorporate an LLP, two or more people carrying on a lawful business with a view to profit, must subscribe their names to an incorporation document, which is delivered to the registrar of companies. This document must state the name of the LLP, address of the registered office, names and addresses of each of the members. It must also specify which of those numbers are to be designated members (those members who have administrative functions). A statement by a solicitor stating that the Act has been complied with must also be filed. If the registrar is satisfied that the Act has been complied with he will issue a certificate of incorporation.

The rights and duties of members are governed by the provisions of an agreement between them. Where no agreement exists, the default regulations of the Act apply. These make provision for such things as the entitlement of members to share equally in capital profits, and that every member may take part in the management of the LLP.

Every member of an LLP is an agent of the LLP and not each other. Accordingly, each member may represent and act on behalf of the LLP and its business. However, an LLP is not bound by anything done by a member in dealing with a person, if the member in fact had no authority to act for the LLP, and the person knew he had no authority, or does not know or believe him to be a member of the LLP. A former member is still regarded as a member, unless the person dealing with him has notice that he is a former member, or notice has been delivered to the registrar. Where a member is liable to any person as a result of his wrongful act or omission, the LLP (not the other members) is liable to the same extent as the member.

Certain aspects of company and insolvency legislation will be made applicable to LLPs.

Saleem Malik

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