Limited Liability Partnership
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Corporate status
Incorporated. (Note that the limited liability partnership is a particular legal form but the word "partnership" is also used in a wider context. Thus one may come across an organisation called "XYZ Community Partnership" which is, in fact, a limited company and not structured as a partnership or LLP.)Terminology: governing document
"Partnership deed" or "partnership agreement".Terminology: governing body
"The partners".Management/governance structure
A single-tier structure, with no members other than the partners (who thus perform the dual roles of governing body and membership).A LLP is formed by two or more persons associated for carrying on a lawful business with a view to profit who have subscribed their names to an incorporation document and this is submitted to Companies House.
Membership
The only members are the partners. Partners can be individuals or corporate bodies.New partners are normally admitted by the existing partners.
Governing Legislation
Governed by the Limited Liability Partnerships Act 2000 and the Limited Liability Partnerships Regulations 2001 which apply parts of the Companies Act 1985 (as amended in 1989 and later).Charitable status available?
No.Profit distribution permitted
It is worth emphasising that although the LLP has a "view to profit", this does not mean that the profit has to be distributed. The profits can be distributed in any way the partners agree or even retained in the organisation.Summary of the advantages of being a Limited Liability Partnership
- Simple and cheap to create and register
- Less onerous administration than for Limited Company
- Can be a co-operative - simply requires that the co-operative principles be written into the partnership agreement
- Has the simplicity of a Partnership with the additional limited liability
- Tax advantages as the LLP is not subject to Corporation Tax, instead any profits distributed are classed as partner's income for Income Tax purposes.
Summary of the disadvantages of being a Limited Liability Partnership
- Cannot be a charity as must be “for profit”
- Not favoured by funding bodies as "for profit" and poorly understood
- Not well understood in social enterprise sector
- Lack of regulation - a LLP could change its governing document and has no duty to register the change or inform anybody.
- Companies House have to be informed of all membership changes - this may be a large administrative burden for a large organisation with a changing membership.
Examples of use
There are few examples of the use of LLPs in local food inititives or social enterprises in general. Some small worker co-operatives are structured as LLPs. This has the advantage that, as the LLP is "tax-transparent", partners (the members of the co-operative) are taxed as self-employed rather than as employees on PAYE. In this case the members are often sole-traders and the LLP acts as a marketing vehicle and a way of sharing costs. For instance, you could imagine a group of landscape gardeners forming such a worker co-operative LLP.
LLPs may also be formed by a number of voluntary or community organisations to generate trading income: for example, a group of charities might form a LLP to produce and sell Christmas cards, distributing the profits amongst the participating charities.
LLPs may be useful for multi-stakeholder co-operatives, allowing the interests of separate groups of stakeholders to be represented in the LLP by representatives of the member organisations. For example you could envisage a three-way Community Supported Agriculture LLP between a Community Land Trust, a Worker Co-operative and a Consumer Co-operative. The land trust could own land, which is cultivated by the Worker Co-operative to produce food consumed by the Consumer Co-operative. Each organisation would be independent and responsible for its own governance. The relationship between them would be governed by the partnership agreement of the LLP. Normally the relationships between the organisations would be managed by contracts and tenancy agreements.
This use of the LLP form to create a tax transparent container to allow the collaboration of different organisations, has been used by local authorities in partnership with external enterprises.
Participation issues
The participation issues will be entirely dependant on the LLPs partnership agreement, which is created and agreed to by the partners. It should be simple to create such an agreement, which is fair, equitable and ensures participation and good governance.
