Regulation 8. Expulsion
No majority of the members can expel any member unless a power to do so has been conferred by express agreement between the members.
Members as agents
S. 6 of the LLP Act follows closely the wording of s. 5 of the Partnership Act 1890 by providing that every member is an agent of the LLP. The LLP is not bound by anything done by a member who had no authority to act if the person he is dealing with either knows that fact, or does not know or believe him to be a member.
S. 6 (3) covers the situation where a person ceases to be a member of an LLP. A person dealing with the LLP can regard the ex-member as still being a member unless he has had notice of the fact, or the cessation of membership has been notified to Companies House.
Members' fiduciary duties
An LLP is a corporate body, and at common law its members owe fiduciary duties to it, even though this is not expressly set out in the legislation. It is unclear whether, without express statutory provision, the members of an LLP owe a duty of good faith to each other. These should be included in the firm's limited liability partnership agreement.
Minority protection
S. 459 of the Companies Act 1985 (the 'unfairly prejudicial' remedy) applies to LLPs but with the fundamental difference that its operation may be excluded by unanimous agreement between the members. S. 459 provides that the court can make such order as it thinks fit to give relief to members of a company in a case of 'unfairly prejudicial conduct'. The law in this area has been subject to a long process of review and is expected to be reformed in due course.
Procedures
Notice that there are no provisions in the Act for the calling and holding of meetings, as one of the main intentions of the legislation is to provide freedom for members to arrange their internal affairs.
One of the advantages of the LLP for small businesses is the simplicity of the legislation. In a limited company there is a complex legal regime, originally designed for large companies, under which some decisions have to be made by the directors, but others must be effected by the right type of resolution (ordinary, special, etc.) by the general meeting. No such structure is imposed on the LLP. On the other hand, the lack of such a structure, and the fact that there is no equivalent of Table A to provide a standard set of rules, make it essential that a limited liability partnership agreement is drawn up.
Accounts and audit
An LLP is subject to the same rules as a private limited company for the registration of accounts at Companies House, and the auditing of its accounts. The same exemptions from these requirements are available. The result is that a 'small' LLP (one with a turnover not exceeding £2.8 million and a balance sheet total not exceeding £1.4 million pounds) can submit 'modified accounts' comprising only an abbreviated balance sheet. If the turnover does not exceed £1 million pounds, the audit exemption will apply.
Annual return
An LLP must submit an annual return (form LLP363) under much the same regime as applies to companies. The registration fee is £35.
Taxation
The LLP is treated for tax purposes as an ordinary partnership: i.e. each partner is liable to income tax under Schedule D for his or her share of the profits, and to Capital Gains Tax in respect of any gains made on the disposal of partnership assets. This is achieved by inserting new provisions into various taxing Acts, including:
Income tax
New sections 118ZA - 118ZD of the Income and Corporation Taxes Act 1988.
The main effect of these is that a trade, profession or business carried on by an LLP is treated as if carried on by the members of the LLP in partnership, and the property of the LLP is to be treated as partnership property. The result is that the members of the LLP are taxed under schedule D, and the LLP itself is not liable to any tax, such as corporation tax. By s.13, they are also liable to Class 4 National Insurance contributions on their share of the profits.
Capital Gains Tax
Similarly, a new s. 59A is inserted in the Taxation of Chargeable Gains Act 1992, to provide that, where an LLP carries on a trade or business, its assets are to be treated for CGT purposes as being assets of the members. This means, for example, that a gain made on a disposal of an asset by the LLP is treated as accruing to its members (as in a partnership) so that they, rather than the LLP, may be liable to CGT on the gain.
Section 59A(2), however, provides for the LLP itself to be liable 'as if it were a company' (i.e. to corporation tax) in some circumstances.
Inheritance Tax
New s. 267A of the Inheritance Act 1984 also provides that the property, business, etc of an LLP is to be treated as if the LLP were a partnership. The incorporation, change of membership or dissolution of an LLP is to be treated as the formation, alteration or dissolution of a partnership. Any transfer of value by or to an LLP is treated as made by or to the members as partners.
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