LLP - Limited Liability Partnerships
It is possible to form what is known as a limited partnership. However, this must consist of no more than 20 persons. Except in the case of a partnership, which is a collective investment scheme regulated by the Financial Services and Markets Act 2000.
At least one person must be appointed as a general partner who will be liable for all the debts and obligations of the business. The remainder can be limited partners who at the time of entering the partnership contribute monies, capital or property valued up to a stated amount. They will not then be liable for any debts or obligations beyond the amount they have contributed.
A limited partner cannot take part in the management of the business and has no power to make decisions which bind the business. He can however inspect the business books. If a limited partner does take part in the management of the business he or she will be taken to be a general partner and become liable as such.
Limited partnerships must be registered at Companies House.
These agreements should be signed and witnessed (in which case they are known as Deeds) and should include the following clauses:
1. Details of the partnership name and address.
2. Details of the nature of the partnership business.
3. Whether the partnership is to be for a fixed period only. If so, the period should be stated.
4. The amount of capital contribution. As interest is not usually payable on initial contributions the agreement should specify if the partners want interest to be payable.
5. Details of how profits are to be calculated and divided. If this is not specified the assumption is that profits will be divided equally. The agreement should also specify if the partners are to draw salaries rather than share profits.
6. The agreement should provide that the regular accounts and annual balance sheets showing what is due to each partner are prepared.
7. An arbitration clause should be included stating to whom disputes about the partnership should be referred.
8. There should be clauses dealing with what is to happen on a partner leaving or retiring, i.e. whether the partnership is to continue with the other partners given the option to purchase that partner's share or whether the partnership will be dissolved.