legal updates
Saturday, 13 Jun 2009
application of the companies act 2006 to limited liability partnerships
A Limited Liability Partnership (LLP) is an alternative business vehicle with the benefits of limited liability and the flexibility of a traditional partnership. Many of the old Companies Act provisions that applied to companies also apply to LLPs, and from next month certain provisions of the new Companies Act (the 2006 Act) will apply to LLPs.
These provisions will apply to LLPs from 1 October 2009, although the provisions on accounts and auditors came into force back in April 2008. Some of the more important changes to take note of are:
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the register of members: An LLP will have to keep a register of its members containing certain particulars, including a service address for each member and whether a member is a designated member.
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protection from disclosure of residential addresses: LLPs will be required to keep a register of each member’s usual residential address on a separate secure register, and LLPs will be prevented from using or disclosing any member’s residential address.
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unfair prejudice: Protection of members against unfair prejudice will now be available in a similar way to the protection of shareholders.
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dissolution and restoration to the register: Voluntary strike-off of the LLP can be applied for by a majority of the members of an LLP, or if there are only two members by both of them and where there is a sole remaining member, that member alone will be able to dissolve the LLP.
However, not all provisions of the 2006 Act are applied to LLPs. In particular, the provisions on directors’ duties, derivative claims and narrative reporting are not applied to LLPs. This is primarily because:
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the position of members of an LLP does not equate to that of directors of a company;
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LLPs regulate their own membership and management, including duties and responsibilities, in their LLP agreements; and
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applying statutory requirements to these relationships would reduce flexibility and impose unnecessary complexity and burden on LLPs (which is precisely what LLPs are designed to avoid).
These Regulations are intended to allow LLPs to benefit from the modernisation and simplification of company law, thereby ensuring LLPs remain an attractive corporate vehicle for businesses, whilst retaining their distinctive characteristics.
Avoiding the new directors’ duties regime and the new derivative claims powers removes some of the regulatory concerns that directors of limited companies are subject to and should, in many circumstances, make LLPs an attractive alternative to trading as a limited company.
If your business uses an LLP and you want more information on these changes or if you are interested in LLPs more generally, please contact David Wylie or Alison Marshall in our Corporate Team.