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Limited Liability Partnership

“I have appointed the same consultant on a series of projects for several years. It has now told me that it is converting from a partnership to an ‘LLP’. What is this and how does it affect me?”

An LLP is a Limited Liability Partnership. The key consequence of the conversion is that, for future projects, you will have more limited recourse against the consultant.

A partnership is a collection of individuals who set up a business together to make a profit. While the partnership will have a name, it is not, for legal purposes, an entity in its own right. Accordingly, the individual partners are jointly and personally liable for the partnership’s failures. The partnership will have an insurance policy but, if this fails to respond, the partners will have to pay a successful claimant using their personal assets.

The Limited Liability Partnership Act 2000 introduced a new type of business that is essentially a hybrid of a partnership and a company. The business can be structured like a partnership but, unlike a partnership, an LLP is a separate legal entity. This means a claimant can only sue the LLP and recover its assets, not the personal assets of the individual ‘members’ – the LLP equivalent of a partner.

While recourse against the consultant will be more limited in future, one slight benefit over a partnership is that signing contracts is more straightforward. For instance, the general rule is that a partnership only validly executes a deed if all partners sign it. This cumbersome requirement can be overcome by the partnership deed specifically authorising a lower number of partners to sign on behalf of the others. However, this too has difficulties, as partnerships will often not disclose their deeds, so authorisation cannot be checked.

In contrast, under the act, an LLP validly signs a deed if it is signed by two of its members. No further enquiries are necessary.

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