Hi I wonder if some one could advise me about a limited liability partnership. Do they have the right to call themselves directors? If so are they supposed to give themselves a wage as a limited company director would do, or are they treated the same as a normal partnership? Also what would be the benefit of them being a limited liability partnership as opposed to an ordinary partnership.?
I have clients who are in ordinary partnerships but i am about to go see someone who is just setting up and want to go for LLP straight off, your opinions on this would be appreciated.
I think they are called members rather than partners or directors. I have never dealt with an LLP but I seem to recall they are still taxed as a partnership. In years gone by accountants and certain other professions were not allowed to form a company so LLPs came in which still conferred limited liability. Someone will know an awful lot more than me about this as to what the liability is limited to. I think accounts get sent to Companies House like a Limited Company too. This si all from a rather rusty memory I'm afraid!
I looked into LLP in great detail when we opened a business with 4 entities including the bookkeeping and got premises (the landlord would not deal with sole trader or partnerships)
There are many accountants who will not touch LLP because there are no guidelines on what is needed for final accounts from what I was told even Companies House have no real clue. Accountant who most of my clients use advised me that a Limited Company was a better set up when I told them we were going to be an LLP, he strongly advised that we did not go down the LLP route and the only people who use to be those were some industries that were not allowed to set up as Limited Company like solicitors etc.
Would say that if you are a bookkeeper would advise your client speak to accountant they are going to use to see if their accountants will deal with LLP accounts.
There are quite a few disadvantages of LLP from what I remember when I looked into this including the wage, loaning personal money to the LLP etc. It is more beneficial as Limited Company to take a wage that allows you to get NI stamp think this is around the £500 per month then take rest in dividends or if loaned money to the company take out from the Directors Loan.
A limited liability partnership has a separate legal personality to its members therefore it has the advantages of a normal limited company in that the personal assets of the partners are protected provided acts of fraud and/or incompetence do not lift the veil of incorporation.
As with a normal partnership there will be a partnership agreement stating responsibilities and distributions of profits etc.
LLPs are subject to registration with companies house where normal partnerships are less formally controlled.
To the best of my knowledge there is no reason why the partners in an LLP should not refer to themselves as directors although with the big accountancy firms that have adopted this legal form people are more proud to refer to themselves as a partner rather than a director.
For drawings the directors would take dividends based on profit. They could also take money from their capital accounts with the company and may also have a wage. Everything very much depends on the contents of the partnership agreement whether its a normal partnership or LLP.
The main difference between the two legal forms is really the matter of personal liability for the debts of the company.
Worth noting is that where a limited company exists run by a few individuals the court may in the event of disagreement regard even a normal limited company as a quasi partnership in lifting the veil of incorporation.
Considering the above, it is my belief that LLP would be the way to go as it offers more protection to the individual than a traditional partnership and a normal limited company could be deemed just a normal partnership (lifting the veil of incorporation) if it proved to be a quasi partnership. Although such is only likely to occur is one directors takes the others to court such as in the case of Ebrahimi vs Westbourne Galleries Ltd. (1973).
phew, you don't often get questions like that one on this site. Keep it up Dotty.
Shaun.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
all of the big four - Ernst & Young, Deloitte, PWC and KPMG are LLP.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
The equity partners don't have as much legal protection over their own personal assets as a director of a limited company would. (Through my experience).
As already mentioned the firms that are LLPs are mostly solicitors and accountants. They are taxed on the profits of the firm rather than taking a wage. You can though have non equity partners / fixed profit partners who get the same drawing no matter how well the firm performs in the year. Could be good or bad but they don't have the risk the same as the equity partners would. The equity partners are those that own the firm and have put in the funds for the capital accounts.
Thank you all for your replies, it has been very interesting reading them. The clients in question are going to start an employment agency. I am not an accountant but an humble bookkeeper therefore I think it would be best if I was to recommend that they book an hour with an accountant to chat things through. I would probably be putting myself at risk of losing them as clients to the accountant, however I would rather that, than have them get off to a bad start through my ignorance. All of the points in the answers you have given I will raise with them during our first meeting at least now they will be able to make an informed decision and I wont be going into the meeting blind, thanks once again.
Do you have a relationship with any accountants yet? Always useful. If not why don't you call a couple of smaller accountants and let them know you are happy to refer work there ways and hopefully they would like to refer work to you. Then organise a meeting with your client and the accountant, letting your client know that you do the books and the accountant finalises them as this works out the most cost effective way. Now you don't lose a client and gain a potential referral base and possibly a source of answers to more technical questions (cos even Shaun has to sleep sometimes!)
Thanks Rob I think that would be a good idea, I have set myself up as a bookkeeper to new business,s and so far it is going quite well. The reason I wanted new business,s is because I only qualified as a bookkeeper 15 months ago having had no previous experience in any sort of office work of any kind, therefore I wanted to make it simpler for myself whilst my knowledge base grew.
The kind of clients I get are artists, hairdressers, gardeners, small cleaning business,s and photographers so it as been quite an easy ride so far. I am quite confident in what I do however now word of mouth is bringing in the bigger boys and although I need the experience to learn, I dont want my knowledge to grow by costing some other person dearly in their business.
I am always studying more to help build my knowledge base, and this sight has been brilliant too, but it would be nice to have an accountant that would be able to guide me as well.
I'm glad business is going well for you, I know a lot of people struggle to get new clients so it is good that you are bucking the trend...those Yorkshire folk know a bargain when they it!
