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As a business owner, you may wish to convert your general partnership into a limited liability partnership (LLP). There are many reasons why you may want to change your partnership. One of the most common reasons is that your business’ partners benefit from limited liability, which they do not have under a general partnership. If you wish to convert your existing partnership to a limited liability partnership, this article provides an overview of the conversion process. It will also explain some essential legal concepts your business may encounter through the transfer.
Creating a Limited Liability Partnership
To create an LLP, two or more individuals must either:
- be actively engaged in commercial activity to make a profit; or
- intend to do so.
You can create an LLP where one of the partners is another incorporated body, such as a company or a separate LLP.
If you and your partners are already running a general partnership, you will automatically be eligible to incorporate your partnership into an LLP.
The LLP Agreement
If you and your partners already manage a general partnership, you are likely familiar with the purpose and importance of the partnership agreement. As with general partnerships, the law is quite flexible regarding the terms that govern an LLP partnership.
In most cases, you will be able to maintain the effect of any pre-existing partnership agreement after your LLP comes into existence.
However, you will need to create a new document that contains a provision binding the LLP and the partners to the terms of the agreement when the LLP is officially incorporated. In practice, you and your partners should instruct a solicitor to draft the agreement before the paperwork is filed. Importantly, re-evaluate all the terms to ensure it suits the needs of the partnership.
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Methods of Incorporation
The process for creating an LLP is the same regardless of whether you already have an existing general partnership or not. It is a straightforward process that requires you and your partners to file a Form LL IN01 with Companies House.
Your LLP officially comes into existence when an official at Companies House processes your Form LL 1N01 and issues a certificate of incorporation. If you have any experience incorporating a company, the process is quite similar.
You can file Form LL IN01 either:
- electronically, through Companies House-recognised third-party software suppliers; or
- through the post, using a paper filing.
The electronic filing system is, however, faster and cheaper.
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Form LL IN01
Form LL IN01 will ask you to supply certain information, including:
The LLP’s name | There are various rules restricting the names for an LLP, such as:
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| The location of the LLP’s registered address | This is where any official Companies House correspondence will be sent and is public information. |
Identifying “Designated Members” | The law requires that at least two partners in an LLP nominate themselves as “designated members”. Designated members have particular administrative responsibilities, such as requirements to file annual accounts with Companies House. Also, they do not have any special rights in the LLP apart from whatever the terms of the partnership agreement specify. |
| Information about the partners | Each person you intend to be a partner of the LLP must list information, including their:
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| Information about persons that will exercise significant control over the LLP (PSC Registry) | The law requires companies and LLPs to create a register listing each individual that exercised considerable control over the company. These individuals are called persons with important control (PSC) and are:
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| Consent to supply certain information to the public | By default, Companies House will publish certain details related to each partner on the Companies House directory and website. In limited circumstances, you can apply for an exemption. |
The partners’ consent to act for the LLP | You will tick a box saying you agree to act as a member of the LLP. |
Post-Incorporation Formalities
There are various formalities to follow after your LLP comes into existence. These include:
- transferring legal ownership in partnership property to the LLP;
- adopting an accounting period;
- appointing solicitors and accountants;
- obtaining insurance;
- filing additional documents with Companies House like the registry of members; and
- entering into business contracts.
Privacy of the LLP Agreement
Because the LLP is an incorporated entity similar to a company, you may expect that you will have to make the LLP agreement available to the public as a company does with their articles of association. However, the law treats this document as a private document and you, therefore, have no obligation to publicise it.
Contracts with Third Parties
As a general rule of law, one party to a contract cannot force the other party to transfer any obligation or benefit to a third party. As a result, if your general partnership has any contracts with third parties, such as trade suppliers or bank loans, these contracts will still exist because between the third parties and the partners under the general partnership. Therefore, each of the partners will be personally liable as they were under the general partnership.
The exception is if you agree with the third party to amend the contract. They are under no obligation to do so, and you may have to renegotiate certain terms in their favour to encourage them to agree.
Key Takeaways
The process for converting your general partnership to an LLP is fairly straightforward. You file a single form with Companies House, which will ask for a variety of information, such as who the PSC are and who the designated members are. If there are no objections, your LLP will come into existence. There are also various formalities you and your partners will have to carry out on either side of filing the document with Companies House, which will depend on the particulars of your partnership.
If you need help converting your general partnership to a limited liability partnership, our experienced commercial lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
The process of creating an LLP for your general partnership to trade through is quite straightforward. You just need to file Form LL I0N1 with Companies House.
A designated member is a partner of an LLP who is responsible for particular duties such as filing accounts. You are legally required to have at least two in your LLP.
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