THE LIMITED LIABILITY PARTNERSHIP (LLP)


General Information

Faithful to its tradition as one of the most fiscally competitive jurisdictions in the world, the UK has retaken the lead in the field of tax efficient investment vehicles, by enacting in April of 2001 the Limited Liability Partnership Bill, thus creating a new and most appealing corporate structure ideal for nonUK trading activities.

The LLP takes over the legacy of the various instruments, some now defunct, popular in the past such as the UK Non Resident company, the Irish Company, and to an extent the Scottish Partnership, and applies the same competitive tax advantages of these with a few corporate improvements along the way. It also provides a valid alternative to many structures based on the "nominee agreement" principle, as its legal and fiscal fundamentals are clearly established in the law.

We are therefore pleased to submit to your consideration the following overview on the characteristics of the LLP, as it may well prove to be the answer to the requirements of a great number of clients of our group.

Synopsis


Despite the fact that the UK is by no means a low tax country, UK companies and limited liability partnerships can be used effectively and advantageously in a tax planning structure. Also, as the UK is not a tax haven, UK based tax planning structures would not generally attract the same attention from foreign revenue authorities as those based in tax havens.

The UK has signed double taxation treaties with 100 countries and thus enjoys the most extensive double taxation treaty network in the word.

The UK LLP


This new form of legal entity was created by the Limited Liability Partnerships Act 2000. The essential feature of a limited liability partnership ("LLP") is that it combines the organisational flexibility and tax status of a partnership with limited liability for its members. This limited liability is possible because an LLP is a legal person separate from its members.

The LLP can do anything that a natural person could do. It has the ability to enter into contracts, own assets and will continue in existence in spite of any change in membership. Its existence as a separate legal entity makes it more closely akin to a company than to a partnership. The concept is similar to that of the US Limited Liability Corporation, a US legal entity, which is not generally subject to US taxation. Although the LLP is a legal entity, it is taxed like a partnership so no tax is assessed on the LLP but profits are only taxed in the hands of partners, so if a partner is a non-UK entity and does not trade in the UK, no UK tax will be liable. Thus it may be possible to create a non-UK taxable structure provided that the trading activities take place outside of the UK and the profits are generated from a non-UK source.

Taxation


For the purposes of UK tax legislation, a trade, profession or business carried on by an LLP with a view to profit is treated as carried on in partnership by its members (and not by the LLP as such).

Therefore, the LLP is tax transparent. Its profits are taken to flow through to its members and if the members are non-UK resident and the LLP does not receive UK source income, then in theory the LLP should not be subject to any UK tax. It is possible for two offshore companies, carrying on a lawful business with a view to profit, to be members of an LLP.

Although there are no UK residence requirements for LLP members and an LLP does not require a place of business in the UK, it may be commercially sensible to appoint a UK partner to whom a small profit allocation is made. Certainly, if it is necessary to demonstrate that one of the partners is subject to tax, or if it is important for the LLP to acquire from the Inland Revenue a tax reference number, then a UK partner should therefore be appointed.

LLPs can be registered for VAT, which may be essential for trade that takes place with companies and other vehicles domiciled in EU nations. An LLP should not be used to purchase real estate and to participate in pension type products since such activities may make the structure more prone to UK Inland Revenue attack.
LLPs should not be registered and structured as non-profit making or charitable vehicles.

The Inland revenue accepts that an LLP and its members may not be subject to taxation. They concede that this is the case where the offshore partners are beneficially owned and controlled by individuals who are neither domiciled nor residents in the UK, where the LLP does not trade in or from the UK, and where the LLP is not used as a branch of the offshore partners.

Members


There must be a minimum of two partners who may be individuals or corporations. At least two of the members must be "designated" as having responsibility for certain statutory functions, namely the filing of returns and other documents at Companies House. The designated members will also have responsibility for ensuring that accounts are filed with the relevant UK authorities. In the absence of two designated members, all members are deemed to be designated members. The designated members have the same functions as the directors of a company, but are exempt from the liabilities normally attached to the duties of a director. Every member of an LLP will be an agent of the partnership and, with limited exceptions, capable of binding the LLP.

Annual Reporting


Accounts of an LLP must be lodged with UK authorities each year and are of full public nature, as they must disclose the participation of each partner. Responsibility to declare the tax status of the owners of offshore partners lies with the LLP's accountants. Accounts will have to be audited if the turnover of an LLP exceeds
£1,000,000. The designated members must reappoint the auditors within two months of approving accounts.

Liability


The liability of members will be limited to the amount of capital that they agree to contribute to the partnership. No minimum capital contribution is prescribed so theoretically this could be nil.

Partnership Agreement


Except as provided in the LLP Act or in regulations made under the Act, the mutual rights and duties of an LLP and its members are governed by a Partnership Agreement. This contrasts with a limited company in which the relationship between the directors and shareholders are defined in the Articles of Association. The Partnership Agreement is not filed at the Registry and is not open for public inspection.

Timescale


Incorporation of a new LLP can take up to three weeks but ready-made partnerships are available for immediate use.

Restriction on Name an Activity


The Registrar has the power to refuse registration of any name, which he considers undesirable or too similar to an existing name. A name will not be allowed if it is misleading - for example, if it suggests that a company with small resources is trading on a great scale or over a wide field. Names cannot ordinarily be allowed if they suggest connection with the Crown or Government Departments.

Local Requirements


The LLP must maintain a registered office in England and Wales and at least two of the partners must be registered as designated members. Forms required:

LLP 2 - Name, Registered office, Disclosure of first members.
LLP 8 - Notice of designated members.
LLP 225 - Change of Accounting reference date.
LLP 288a - Appointment of a member
LLP 288b - Terminating membership of a member
LLP 363 - Annual return

Main Charasteristics of the LLP

1. No directors
2. Minimum 2 members
3. Requirement for 2 designated members
4. There is no memorandum and articles, so no object clauses
5. Limited liability 6. No authorised capital requirements
7. Required partnership agreement is a non public document
8. Must be involved with a profit making trade, profession or business
9. Must not own property as sole activity unless for trade
10. Must not participate in pension type investment products
11. Is not required to have a place of business in the UK
12. Is not required that one of its members be a UK person or entity
13. Partners will be taxed in the uk if LLP trades in or from the UK


The above information is for guidance only and therefore the material contained herein should not be regarded, viewed or considered as an advice. You should contact your tax or professional adviser/s for appropriate detailed professional advice. We accept no liability for the accuracy of the information contained herein, nor any loss arising from reliance on it.



If you require an Offshore Company or need an advice for your needs, please call our Expert Team who can assist you with your requirements. You are invited to call us at (230) 245 6703. You may send your enquiries by email: contact@premier.mu or by fax at (230) 245 6704.

 
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