If an LLP creates a mortgage or charge over its property this will require registration at Companies House within 21 days of its creation if it covers certain types of property such as land or buildings or book debts or if it is a floating charge. The original mortgage or charge document must be submitted to Companies House along with the relevant form. If a charge is not registered in time it will be void against the liquidator or administrator of the limited liability partnership or against any of its creditors. Late registration is only permitted with the sanction of a court order.
An LLP is required to keep a register of charges at its registered office and to enter in this details of all charges created (this applies even to charges that are not registrable at Companies House). It must also keep available for inspection at registered address, or at SAIL address by any member or creditor of the LLP copies of any charge instruments relative to charges it has created that are incorporated at Companies House. If a registered charge is satisfied, may be submitted to the registrar in order that the register of charges may be updated. Special provisions apply to mortgages and charges created by Scottish LLPs.
Partnership agreement & financial issues
All the financial issues below should be taken into consideration in a partnership agreement.
LLP capital investment
The agreement should state how much financial input each partner is have. Capital investment from each partner is how the business will finance itself and purchase the assets needed to run the business.
LLP income and share of profits
You will need to consider how much, if any, each partner will take from the business as a salary. This will be before profits are distributed and can be used to reflect the different roles and work input of each partner. In addition, you may wish to award partners' interest on their capital contributions. This can be paid before profits are distributed to reflect any differences in capital investment. Unless expressly agreed, the Partnership Act states that each partner will share profits equally.
If you want to share profits in different ratios, for example, to reflect seniority, then this will have to be expressly stated. You will also need to address the issue of how any losses will be shared.
A potential source of disagreement between partners is the amount of money each is entitled to draw from the business. Some may wish to store a higher percentage of profits in the business to maintain a healthy balance, whilst other partners may want to withdraw their share of the profits immediately. It is important, therefore, to agree on a limit on drawings, for example, a set monthly amount.
Shares in asset value changes
In the situation where a fixed asset of the firm, such as a warehouse, is sold at a profit, how is this profit to be shared? Under the Partnership Act, this will be in equal proportions unless stated otherwise. It may be important, therefore, to expressly agree on what is to be done in this situation if this profit is not to be shared equally.
Ownership of business assets
The business may acquire assets during its life, partners may allow the business to use assets that they own or a partner may use the value of one of their own assets to represent their capital investment in the business. It is; therefore, important to stipulate which are the partnership's assets and which belong to an individual partner. Disagreement over the ownership of assets may occur when dissolving the partnership.
If the partnership is likely to prove quite complicated or there are substantial amounts of money or assets involved, you should seek advice from a solicitor. The above information, however, will help you be informed about the most important issues and enable you to consider relevant matters with your other partners.
Partnership agreement operational issues
All the operational issues below should be taken into consideration in a Partnership Agreement.
Degree of commitment
It is important to consider how much work each partner is to do in the business. For example, a 'sleeping partner' whose involvement is purely financial, will not want to be required to take part in the daily running of the business. In addition, some partners may want to work part time whilst others are to work full time. The Partnership Act will imply that each partner has the right to take part in the daily management of the business unless stated to the contrary. An agreement should set out, therefore, the degree of commitment of each partner. For a full time working partner this may be expressed as 'devoting his/her whole time and attention to the business.
Sickness, absence and holidays
When considering the degree of commitment that the partners are to have, you should address the issue of absence from the business. It is important to consider what will happen, for example, when a partner needs maternity leave or is suffering from long-term incapacity. You will have to qualify the duty of any full time partner to devote all his/her time and attention to the business with whatever is decided on about time off for holidays, sickness or other absenteeism.