Limited Liability Partnerships (LLPs)

An LLP offers several benefits:

• Limited Personal Liability: LLP partners are not personally liable for the debts and liabilities of the limited liability partnership, except to the extent agreed and where they may be liable for their own acts or omissions. Business partners' personal assets are protected, and their liability is limited to the amount they've invested in the partnership
• Flexibility: Limited liability partnerships offer flexibility in management and ownership structures, allowing partners to define their roles and responsibilities in the partnership agreement
• Pass-Through Taxation: Limited liability partnerships enjoy pass-through taxation, meaning profits and losses are passed through to individual partners' tax returns, avoiding double taxation at the entity level
• Easy Transfer of Ownership: Limited liability partnerships permit easy transfer of ownership and the addition of other partners, making it adaptable to changing business structures
• Legal Entity Status: Limited liability partnerships have separate legal entity status, which provides credibility and the ability to enter contracts, own assets, and sue or be sued in the partnership's name
• Limited Formalities: Limited liability partnerships often have fewer regulatory and reporting obligations in comparison to private limited companies, which reduces admin procedures.

Overall, LLPs combine liability protection with operational flexibility, making them a popular choice for businesses and professional practices.

A limited liability partnership (LLP) provides limited personal liability to its partners, who actively manage the business.

In contrast, a limited company offers limited liability to its shareholders and can have a separate management structure.

Profits and losses are allocated to individual partners, who report and pay income tax on their share of income, through self-assessment tax returns.

The LLP structure avoids double taxation at both the entity and individual levels, as opposed to companies that have to pay corporation tax.

Partners in an LLPs typically get paid through profit distributions.

The distributions are based on the LLP agreement and the profit-sharing arrangement.

Partners may also receive salaries or guaranteed payments if specified in the partnership agreement.

The specifics of payment methods and amounts can vary widely depending on the LLP's internal structure and agreements among the partners.

Partners in an LLP cannot take dividends.

Dividends are typically associated with companies, where shareholders receive a portion of the company's profits.

In an LLP, profits are distributed to partners through profit distributions based on the LLP agreement and the partners' ownership shares.

Designated members in an LLP are individuals who hold certain responsibilities and obligations as outlined by the LLP's governing documents.

The responsibilities may include administrative duties such as filing annual accounts, maintaining company records, and ensuring compliance with legal requirements.

Designated members are often recognised as the primary points of contact for regulatory authorities and may have additional duties assigned by the LLP agreement. We can provide information on the LLP agreement and internal policies to help designated members meet their obligations and reduce the risk of disputes.

Myerson acted for a law firm on its incorporation from a partnership into a limited liability partnership.

The Myerson team worked closely with the law firm project team, as well as the firm's tax advisers, to help implement the structure, prepare the documentation, and complete the project.

The Myerson team prepared the incorporation deed and provided advice on the transfer of certain assets from the partnership to the LLP, such as:

• The transfer of client retainers (and whether client consent was required), including conditional fee agreements (CFAs), damages-based agreements (DBAs) and other types of retainers.
• Transferring client monies in line with the guidance issued by the Solicitors Regulation Authority. Documenting the process for dealing with disbursements and work-in-progress.
• Advising on the assumption of liabilities, including the transfer of the partnership's loan arrangements, bank accounts and overdraft facility.

The Myerson team also prepared the LLP membership agreement, which entailed reviewing the existing partnership agreement and retaining (whilst tailoring and updating) the core principles so that they continued to operate in the context of the LLP.

This included, amongst other things, drafting to capture the rules of the firm on:

• Entitlement to profits (and risk for losses), including current account drawings.
• Capital contributions and capital account maintenance.
• Members' duties, responsibilities, entitlement to holidays, flexible working, and other benefits.
• Which members would act as designated members of the LLP.
• Management and decision-making, including voting, the powers of the management board and the maintenance of the Chief Executive Officer position.

Additionally, Myerson assisted on a number of other matters ancillary to the project, including:

• Advising on other specific arrangements of the firm, including after-the-event (ATE) insurance policies and case funding agreements.
• Advising on the data protection issues in connection with the transfer of client personal data, marketing databases and direct marketing data.
• Advising on the transfer of the employees of the partnership to the LLP under TUPE.
• Advising on matters pertaining to changes of control (including checking contracts for consent requirements).
• The incorporation of a trust corporation, which the firm utilises for the provision of in-house trustee services (as trustee, executor, administrator, attorney and/or deputy), including advising on the SRA guidance and its constitution.