Background on Limited Liability Partnerships

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The Limited Liability Partnership Act 2000 (the LLP Act) created a new corporate vehicle, adding to the choice of legal organisations available for businesses in Great Britain. An LLP gives the benefits of limited liability as for a company, but allows its members the flexibility of organising their internal structure as a traditional partnership. The LLP is a legal entity separate from its members and, while the LLP itself will be liable for the full extent of its debts, the liability of the members will be limited (except to the extent that the members agree otherwise). Any two or more persons can incorporate as an LLP.

The LLP Act sets out the basic structure and formation provisions for LLPs. The LLP Regulations 2001, made under the LLP Act, create the detailed provisions for LLPs by applying large parts of the 1985 Act and the Insolvency Act 1986 to LLPs. Some provisions are applied exactly as they are in the main Acts; other are amended to reflect the particular characteristics of an LLP.

An LLP is unlike a company in a number of ways. For example, it does not have shares or shareholders and is not therefore subject to the same provisions concerning the relationship between a company, its shareholders and its directors. It is not subject to rules about capital maintenance. It does not have directors – only members. Its members are generally taxed in the same way as if they were partners in a partnership. It is however subject to similar accounting and disclosure provisions.

Since its creation about six years ago, the LLP structure has appealed to firms of all sizes and sectors. Most of the large accountancy and legal firms are LLPs, but the form is also used by a number of small firms. Currently there are approximately 22,000 LLPs on the Companies House Register.

The Government’s general policy on LLPs is to treat them in the same way as companies of the same size and sector unless this is clearly inappropriate.

Investigation regime

The Secretary of State has a range of powers under companies legislation to investigate the affairs of a company and related matters under Part 14 of the Companies Act 1985 (the 1985 Act). The vast majority of company investigations area carried out under section 447 of the 1985 Act. Investigations under section 447 are carried out where, for example, there are grounds for suspicion of fraud, misfeasance, misconduct, conduct unfairly prejudicial to shareholders or failure to supply shareholders with information they may reasonably expect.

The Companies (Audit, Investigations and Community Enterprise) Act 2004 (the CAICE Act) amended Part 14 of the 1985 Act in order to strengthen the investigation regime, without changing the basis for inspections or making any change of substance to the grounds for an investigation. As the investigations provisions in the 1985 Act have been applied to LLPs, it is appropriate also to apply these amendments.

The new sections in the 1985 Act introduced by the CAICE Act and now applied to LLPs by the 2007 Regulations are:-

• section 447A, concerning the limitations on the use of information provided in compliance with a section 447 requirement in criminal proceedings;
• section 448A, providing immunity to individuals volunteering information to Companies Investigation Branch from legal liability for breach of a contractual or other duty of confidence;
• sections 453A and 453B, allowing investigators to gain access to and remain on “relevant premises” if by doing so will materially assist the investigation;
• section 453C, introducing more effective sanctions against any person who refuses to co-operate with legitimate requests or intentionally obstructs an investigator; and
• schedules 15C and 15D, concerning the disclosure through statutory “gateways” of information gathered during the course of an investigation, criminal penalties attach to the unlawful disclosure of such information.

The 2007 Regulations also apply the 2005 Regulations to LLPs. The 2005 Regulations made under Section 453B prescribe the information which the written statement of rights and obligations of the visit must contain.

Strengthening the investigation regime for both LLPs and companies is part of a package designed to help ensure confidence in the UK corporate framework.