At Accountex friends of mine conducted a straw poll of attendees to ascertain attitudes to advising on Limited Liability Partnerships (LLPs). The straw poll was related to a project to which I have leant some support. The results were not wholly surprising but do reveal continued misconceptions and fear of the unknown:
- LLPs are perceived to be of marginal value: In fact they are the preferred business structure for anyone who wants the protection of limited liability, but does not want or need a limited company.
- LLPs are perceived to have limited tax advantages: In fact tax is rarely the key driver. The tax rules are effectively the same as for conventional partnerships. LLPs are transparent for tax purposes.
- The benefit of the limited liability aspect of LLPs is not well understood: The fact is that LLPs offer all the normal benefits of limited liability but without the inconvenience of a corporate structure.
- LLPs are perceived to be just another form of partnership with all the attendant management issues: In fact the move from conventional partnership to LLP status allows many such management issues to be resolved when the new membership agreement is drafted. In practice the real benefit over conventional partnership status is the added protection of limited liability.
- An inability to prepare LLP accounts as easily as for sole traders and limited companies: This shouldn’t be a barrier as all of the main accounts production systems have LLP modules. The practical problem is that some accountants have yet to access the LLP modules.
- LLPs are not perceived to be a key option for new business start-ups: This simply follows from many of the above issues. It is why I assisted in the creation of a business structure review checklist – to identify those occasions when LLPs should be seriously considered.
- LLP agreements are thought to be no more important than a conventional partnership agreement or a standard shareholder agreement: In fact LLP agreements are as importnat as shareholder agreements where there is any possibility, however remote, of a disagreement. The default provisions to resolve disputes in the LLP Act will rarely result in a fair outcome.
- LLP agreements between individuals and their own companies could be perceived as agressive tax avoidance: In fact the tax benefits of such a structure are a side-benefit. The principal reason for such a structure is to obtain the protection of limited liability without the administrative hassle and complexity that arises when running the business through a limited company.
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Hi Mark
Thank you – very valuable to see the perils of Limited Liability Partnerships debunked from an accountant’s perspective – and certainly Misconception 5 goes some way to answering my question / the mystery of “Why don’t more businesses choose an LLP as their form of trading!?”
I’d love to know your thoughts on when one *needs* a limited company?, as you’ve mentioned in Misconception 1. Would you say that there is anything much beyond intending to secure external investment in the form of share capital in the future?
Best wishes
Lubna
Thanks Lubna
There are also of course the well known (but sometimes overrated) potential tax savings. The Business Structure Review document to which I refer above considers all of the key issues. There are indeed other occasions when a limited company is the recommended structure.
I suspect accountants unfamiliarity with LLPs is the main reason why they aren’t even presented as an option by many firms. In particular in firms where company work is in a seperate department from unincorporated businesses, I’ve seen disquiet about LLPs as they fit into neither department’s comfort zone. Add to this the absence of LLP modules from some accounts production software and you have a recipe for negligent advice.