Two of the advantages of operating through the medium of a Limited Liability Partnership (LLP) are that no personal liability falls on a member of a limited liability partnership for the contracts or debts of the LLP and there is no joint or several liability for the negligence of any other member.
It seems reasonable therefore to discuss this option during my talks about ‘How to avoid professional negligence claims and worse’.
It is worth noting that the key advantage of an LLP as compared with a traditional partnership is that the members of the LLP have the protection of limited liability if something goes wrong with the business, in much the same way as do shareholders in a limited company. For many liabilities (eg bank finance and rental obligations) personal guarantees may be required but this rarely occurs as regards the prospect of claims being made re negligent advice.
In practice a member of an accountancy LLP is in no better and no worse position than a director of a limited company of accountants. But they are in a better position than the partners in a conventional partnership.
However, the protection of limited liability is not the main reason for firms choosing to convert to LLP status. It is more the fact that an increasing number of younger ambitious prospective partners are reluctant to take partnership in conventional firms where they are taking on joint and several liability with the older partners. Given the choice between partnership in such a firm or in an LLP, all else being equal they choose the LLP.
Does this accord with your oewn experience? Please add your veiws as comments on this post.
Hi Mark
LLPs are being used by new business starts. One reason is that when compared with a Ltd Co the formalised way of profit extraction are avoided. There is no S419 charge which with a company with low profits in early years often raises its head if borrowing is used until profits grow sufficient to support directors. Finally share of losses can be ofset against other income
Pleased to hear it Paul. I entirely agree with that approach. Indeed it’s because of such benefits that I am surprised that relatively few accountants discuss LLPs with their clients. I think I’ve worked out why though – as explained in my more recent June 2009 post on LLPs