02 June 2010
As the climb out of recession gathers pace, there are plenty of new opportunities to be had for enterprising business owners. All the more reason then, why this is a good time to review existing business structures and consider whether a carefully thought out alternative could deliver better returns. This applies equally well to anyone with plans to set up a new business or venture who is willing to challenge the more traditional way of operating.
One increasingly popular option which can deliver real benefits for both new and existing organisations is the Limited Liability Partnership (LLP).
Recognised for their greater structural flexibility and tax transparency, LLPs also have a major advantage as they enable members to avoid putting their own assets at risk, something which can be an issue in traditional partnerships.
Created in 2001, LLPs were originally envisaged as vehicles which would be used by professional practices (particularly accountants) to restrict their personal liability. And, while LLPs remain particularly attractive to professional practices, the benefits they offer means this is now a business structure that is being seen across a range of sectors.
LLPs include:
• Financial services businesses (many venture capital or similar funders are structured using an LLP)
• Alternatives to a traditional joint venture company
• Commercial property developers working in tandem on new developments
• Charities working together on specific projects
Also, LLPs can be used to provide attractive remuneration structures for key players in a business.
When it comes to avoiding putting a member's assets at risk, using an LLP structure can provide much greater protection than a traditional partnership. For example, if a charity entered into a traditional partnership arrangement with a corporate organisation, then the charity's assets would be at risk if there was a claim against the partnership. Using an LLP would avoid that risk.
An LLP also enables its members to have a relatively free hand in managing the business. Because it is a separate corporate entity, the LLP can enter into contracts – something that a partnership cannot do – and the individual partners are treated as carrying on a business together.
The main tax advantage of an LLP is tax transparency, which means that profits are passed back to the members and taxed in the member's hands rather than being taxed as profits in the hand of the LLP.
One of the advantages of an LLP in helping to create tax efficient remuneration structures arises when a key player of a business is a member of the LLP. Any bonuses can be paid to that key player on the basis that they are a member and not an employee, and so employers' NI will be avoided.
The corporate and commercial team at B P Collins has been working closely with a number of clients who have either incorporated their new or existing businesses as an LLP, or are considering doing so.
Partner David Smellie said: "There are no hard or fast rules on who or which type of organisation would benefit from becoming an LLP. We have worked with organisations ranging from professional practices to equity funders, all of whom see an LLP structure as a more flexible way of operating.
"The cost of transferring an existing business into an LLP has to be considered, but the process is relatively painless and often the costs are far outweighed in the long run by the benefits that are achieved. Clearly if someone is already trading through a company or is in a partnership, then there will be work to do in terms of dissolving the original business, transferring assets and so on, as well as setting up the new LLP. We have hands on, practical, cross practice experience of doing this to ensure that the best results are achieved.
"We also have excellent links with tax advisers and other professionals who can provide the additional guidance needed to anyone who is considering the benefits of converting to an LLP."
Please contact our corporate and commercial practice group on 01753 279022, complete the online enquiry form or email commercial@bpcollins.co.uk. |
