Running a British Limited Liability Partnership

In order to form a limited liability partnership in the United Kingdom, there must at the outset be at least two people who are associated for the carrying on of a lawful business with a view to profit and who subscribe their names to an "incorporation document". A written statement must also be given that there has been compliance with the requirement that at least two persons, associated for the purpose of carrying on a lawful business with a view to profit, have subscribed their names to the incorporation document.

The statement must be made by a subscriber to the incorporation document or a solicitor engaged in the formation of the LLP. The incorporation document and the statement have been combined into one prescribed form. This form, duly completed and signed, must be delivered to the Registrar together with the prescribed fee.

The incorporation document is required to contain specified items of information: the name of the limited liability partnership, whether the registered office is to be situated in England and Wales, in Wales or in Scotland, the address of the registered office, the name and address of the persons who are to be members on incorporation and whether some or all of the members are to be designated members. The "statement" contained in the form does not take the form of a statutory declaration but an offence is committed if a person makes such a statement which that person knows to be false or does not believe to be true.

A person who commits this offence is liable on summary conviction to imprisonment for up to six months or a fine that does not exceed the statutory maximum (currently £5,000.00) or both. If the conviction is on indictment, the person will be liable to imprisonment for a period of not more than two years or a fine or both.

The name under which a limited liability partnership is to be registered is subject to various restrictions and requirements. The name of an LLP must end with the expression "Limited Liability Partnership" or the abbreviation "L.L.P." or "LLP" (or, where the registered office of the LLP is to be in Wales, a specified Welsh equivalent). The name may not include, without the required permission, any of the various prescribed controlled words.

In other words, the usual rules for company names apply with the necessary adaptations for limited liability partnerships. The Secretary of State also has power to direct a change of an LLP's name within 12 months of its adoption if, in the DTI's opinion, it is too like the name of another entity on the index of names.

When the Registrar's office receives the incorporation form, it retains and registers it. The "statement" contained in incorporation form may be accepted by the Registrar as sufficient evidence have been complied with. When the documents have been registered, the Registrar issues a certificate of registration which is conclusive evidence have been complied with and that the LLP is incorporated by the name specified in the incorporation document.

Which of the members are to be designated members or that all are designated members who are responsible for compliance with the requirements of the LLP Act. Unlike limited companies, limited liability partnerships do not have a memorandum or articles of Association. However, it is important for members to have a valid partnership agreement - this does not need to be provided to Companies House.

Limited Liability Partnership' Stationery

As with limited companies, there is certain information that must be displayed on the LLP's stationery. All business letters, notices and publications, cheques, bills, invoices etc., must bear the full name of the limited liability partnership including the words limited liability partnership or the abbreviation LLP. In addition, all business letters and order forms must show the following: the place of registration - e.g.; "Registered in England & Wales" or "Registered in Scotland", the registered number, the fact that it is a limited liability partnership, and the address of its registered office.

Limited Liability Partnership' Responsibility to Prepare Accounts

The members of the LLP are responsible for preparing the firm's annual accounts and, if applicable, consolidated accounts for it and its subsidiaries. The accounts must be approved by the members and signed by a designated member. The accounts, together with the auditor's report where appropriate, must be sent to every member of the LLP and to all the firm's debenture holders (if any) within one month of their being signed, and in any event no later than ten months of the end of the relevant reference period.

The accounts, which must be properly prepared and give a true and fair view, comprise the balance sheet, profit and loss account and notes to the accounts. There is no requirement to prepare a directors' report.

Delivery of the Annual Accounts

Every LLP has an accounting reference date which is its financial year-end. It is also the date that determines when accounts are due for delivery to Companies House. You must tell Companies House when you have changed the date. It can be costly if you forget to tell us and prepare accounts to the wrong date. If you do, we will refuse registration of the accounts and you will have to prepare fresh accounts to the accounting reference date held on record at Companies House.

Every LLP must prepare a set of accounts for their members and a set for filing at Companies House. Small and medium-sized LLPs may choose to comply with separate requirements for the accounts that they must prepare for its members and those that they file at Companies House. For large LLPs, both sets of accounts are identical. There is a deadline for delivering acceptable accounts, which comply with all relevant legal requirements to Companies House. If you miss the deadline and file your accounts late, we will issue an automatic penalty, without exception. So it is important that you, your accountants and your auditors, where appointed, are aware of the filing deadline.

The requirements and filing deadlines of the Companies Act 2006 are not the same as those of Her Majesty's Revenue and Customs or other regulatory bodies such as the Financial Services Authority. It is the members' responsibility to be aware of the different requirements. Accounting records are records, which are sufficient to show and explain the LLP's transactions and to disclose (with reasonable accuracy) its financial position at any time. The accounting records must enable the members to prepare accounts that comply with the requirements of the Companies Act.

Do All LLPs Have to Keep the Accounting Records?

Yes, every LLP, whether or not they are trading, must keep accounting records.

Audit Exemption

Although all limited liability partnerships (LLPs) have to submit some form of accounts to Companies House, these accounts don't have to be audited for financial years starting before 6 April 2008 or prior to 1 October 2008 for LLPs if you:

• Qualify as a small LLP for the purposes of filing abbreviated accounts
• Have a turnover of no more than £5.6 million
• Have a balance sheet total of no more than £2.8 million

For financial years starting on or after 6 April 2008, to qualify for total audit exemption, a partnership must:

• Qualify as a small LLP;
• Have a turnover of no more than £6.5 million
• Have a balance sheet total of no more than £3.26 million

Small and medium-sized LLPs can take advantage of the higher thresholds for accounting periods starting on or after 1 October 2008. In these cases you can submit audited accounts if you wish, but it is not compulsory. Bear in mind there can be drawbacks. Banks, credit managers and your customers and suppliers rely on information from Companies House to assess creditworthiness and will be reassured by an independent audit. If you decide to submit audited accounts, you must appoint an auditor.

Even if a small LLP meets the criteria, it must still have its accounts audited if any of the following ask for an audit:

• A member or members holding at least 10 per cent of the value of issued share capital or 10 per cent of any class of shares
• In the case of a company limited by guarantee - 10 per cent of its members in number

Recent changes to the rules have allowed some small financial services businesses and some small businesses, such as home-finance providers, that comply with Sharia law to qualify for an audit exemption. However, businesses taking advantage of the audit exemption should be aware that shareholders who own 10 per cent or more of the company still have the right to ask for an audit.

What Must Accounting Records Include

Accounting records must in particular contain:

• Entries showing all money received and expended by the LLP and
• A record of the assets and liabilities

Also, where the LLP's business involves dealing in goods the records must contain:

• Statements of stock held by the LLP at the end of each financial year
• All statements of stock takings from which you have taken or prepared any statements of stock and
• A statement of all goods sold and purchased, other than by ordinary retail trade. This should list the goods, the buyers and sellers

A parent LLP must take reasonable steps to ensure that any subsidiary undertaking keeps sufficient accounting records so that the members of the parent are able to prepare accounts that comply with the requirements of the Companies Act, including where the accounts are prepared using International Accounting Standards.

Where Must an LLP Keep its Accounting Records?

An LLP must keep its accounting records at its LLP registered office address or a SAIL address - a place that the members think suitable. The records must be open to inspection by the LLP members at all times.

If the LLP holds the records at a place outside of the UK, it must send accounts and returns with details of the business dealt with in the accounting records at least every six months and keep them in the UK. Those accounts and returns must disclose the financial position and enable the members to prepare accounts that comply with the requirements of the Companies Act, including where the accounts are prepared using International Accounting Standards.

Remuneration of LLP' Members

A new paragraph 56A is applied to LLPs. This requires LLPs to give two items of information. First, a figure for the average number of members in the firm during the year must be given. Second, if the amount of the LLP's profit before members' remuneration and profit share exceeds the £102,000, the amount of profit (including remuneration) which is attributable to the member with the largest entitlement to profit (including remuneration) must be disclosed.

For the purposes of deciding the amount to be disclosed in relation to the highest earning member, remuneration is to include emoluments specified in Companies Act and which are paid by or receivable from the LLP, its subsidiary undertakings and any other person.

Merger accounting. It is specifically provided that where a "parent" LLP adopts the merger method of accounting in preparing its group accounts, it must comply not only with the remainder of the revised paragraph 11 of Schedule 4A but with generally accepted accounting principles or practice. This latter requirement effectively requires LLPs to comply with the guidance contained in the Statement of Recommended Practice (SORP) on LLPs, expected to be issued towards the end of 2001.