What the LLP is that?

Previously, venture capital firms, such as the former owners of heavy engineer DavyMarkham – Endless LLP – seemed to be the more typical company that Machinery came across. KPMG LLP, for example, while Grant Thornton UK LLP is another finance firm, this time one that has been involved with a machine tool firm buyout. But, in addition to Aberlink, there's also CNC machining subcontractor Larchfield Engineering (UK) LLP and Studer agent Micronz LLP in the UK, plus MAG IAS LLP in the US, for example. So what is an LLP? Well, Mark Lee, founder of The Tax Advice Network, can help on this one (full explanation ). LLPs were introduced into the UK by the LLP Act in 2001 and were originally intended as an alternative business structure for professional firms, such as accountants and lawyers. Indeed, over the last few years, most of the biggest professional firms have become LLPs. But, notes Mr Lee, it is now apparent that LLPs can be used by any business that wishes to secure the benefits of Limited Liability, without the constraints and complications of operating as a limited company. And a driver noted by Mr Lee is that the tax-saving potential of Ltd status has diminished, although notes that tax traps await the naïve with LLPs. But, already the vast majority of LLPs registered at Companies House are not professional firms, he advises. The limited liability protection for LLP members is essentially the same as for the directors and shareholders of a limited company. But there are a number of other differences: [] Buying and selling shares is not as easy – a hindrance to third-party investment; [] Capital maintenance requirements are weaker, so owners can pay dividends even if profits are not sufficient; [] LPs, unlike companies, are not required to hold, record details and maintain minutes of directors' meetings, shareholder meetings, annual and extraordinary meetings, but annual reporting requirements and a specified format for LLP accounts are not much different to the rules for a limited company; [] In certain restricted circumstances, the members of an LLP can be required to repay drawings and profits, were the LLP to become insolvent; [] Profits of an LLP are taxed in the same way as for a sole trader, potentially more attractive than a limited company. Summing up more broadly, www.businesslegal.ltd.uk says: "The main difference between a Limited Liability Partnership or LLP and a limited liability company is that an LLP has the organisational flexibility of a partnership and is taxed as a partnership. In other respects, it is very similar to a company." Machinery is not, by the way, suggesting anything is murky by the fact that companies have chosen this form of incorporation. But it looks like LLP will become a more common form of company, so it is at the very least interesting to understand a little of what it means. Lastly, LLP is not a UK-only phenomenon. LLPs can be found in the USA, Canada, China, India, Poland, Romania, Greece and Germany. However, that the name is the same does not mean that all the details are similarly the same. There is, for example, said to be considerable confusion between LLPs as constituted in the US, and those in the UK and elsewhere. First published in Machinery, March 2011