Limited Liability Companies Advantages and Disadvantages

Document Sample
Limited Liability Companies Advantages and Disadvantages Powered By Docstoc

At a glance …..

Advantages                                       Disadvantages

Liability is limited.                            Formal procedure to set up.

Can choose how to regulate themselves.           Accounts must be filed with Companies
(flexible)                                       House.
Easier to raise finance than a partnership.      If the membership falls below 2 for more than
(can obtain mortgages)                           6 months then the remaining members will be
                                                 personally liable (unlimited liability ends).
Can appoint an administrator if the LLP          May be expensive to draft a Limited Liability
comes into financial difficulties.               Partnership Agreement.

Cost of setting up and procedure

Form LLP2 must be filled in and sent to Companies House. The form

                       signature of 2 people associated with the business
                        (known as the designated members)
                       Chosen name.
                       Location of office
                       the name and address of the people involved in the
A fee of £0 must be sent to Companies House and there will be solicitors’
costs in relation to drawing up the Limited Liability Partnership Agreement (if
you choose to have one).

What is the role of the designated member/s?

Designated members are responsible for carrying out certain duties including
some of those that would normally be carried out by a company director or
secretary. Namely:-

      Sign off the annual accounts.
      File the annual return.
      Apply for a change of name (where needed).
      They also have the duties of the members to comply with.
      Greater duties than the members.

What are the rights and duties of the members?

Any duties contained in the Limited Liability Partnership Agreement (if they
have one) and additionally, a duty to account for money received and to act in
the good faith in the best interests of the LLP.

If no Limited Liability Partnership Agreement applies then the following are
duties that must be complied with:
      All members share profit and losses equally
      Every member can take part in the management of the LLP
      No member can receive payment for their role
      Importantly, there is a duty to account for any profits made from a
       competing business and pay these profits over to the LLP unless
       consent to compete has been obtained
      Any profits made from a transaction involving the LLP must be
       accounted for.

What is Limited Liability?

      An LLP has its own legal personality - this means it can own property
       under its name and employ people.

      Any liabilities of the LLP would be paid solely out of its assets - the
       personal assets of members cannot be used to meet liabilities.

      The extent of the liability could be limited to, for example, £1, in the
       event that the LLP becomes insolvent.

      It gives members protection if the LLP runs into difficulties.

How is an LLP taxed?

Each member is taxed individually on profits made. This means that each
member will need to pay Income Tax and National Insurance on their profit
from the Partnership. It is the same as though each business or organisation
was acting independently as sole traders.

The Limited Liability Partnership Agreement
Why should you have one?

If no agreement is in place, certain terms are implied to govern the
relationship between members. The implied terms are not very

Having a Limited Liability Partnership Agreement clearly identifies the
relationship between the parties and should reduce misunderstandings and

It is not a legal requirement but it does formalise and clarify the relationship.

If no agreement is in place, a member can cease to be a member by giving
notice to the other members.

What does a Limited Liability Partnership Agreement cover?

     When the Partnership starts.
     The name of the Partnership.
     Any financial contributions at the start of the Partnership.
     How profit and loss is shared.
     States any salaries (where applicable)
     States the place and nature of the business.
     Outlines the roles and duties of the partners.
     Outlines how decisions are made.
     How the Partnership is ended.
     What happens on death or bankruptcy of a partner.
     Retirement (what happens when a partner leaves).
     Expulsion (how partners can be forced to leave).

What must be done while running an LLP?

     Accounts must be filed with Companies House.
     An Annual Return must be filed with Companies House.
     Companies House must be informed of any change in membership.
     Companies House must be informed of any changes in designated
     Companies House must be told of any change to the registered office.

How do you end an LLP?
     Apply to the registrar of Companies to be taken off the register.
     A form must be sent to Companies House.
     There is a £10 fee to be taken off the registration.
     You can only be taken off the register in certain circumstances

Is an LLP suitable for you?

LLP’s are more suitable for a long term business opportunity, given the
procedure for setting up and also the costs involved in drawing up an

It is suitable also for businesses or organisations that require a more flexible
working structure to meet their business needs.

Provided all the parties are designated members, the balance of power is
equal, so neither party is more important than the other.


Description: Limited Liability Companies Advantages and Disadvantages document sample