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Describe the Limited Liability Partnership and explain the emergence of this new legal form in the first few years of the 21st Century.

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Introduction

Describe the Limited Liability Partnership and explain the emergence of this new legal form in the first few years of the 21st Century. After 4 years of consultation by the Department of Trade and Industry with academics, partnerships and professional partnerships, the Limited Liability Partnership Act 2000 finally received Royal Assent in July 2000. The Chancellor of the Exchequer announced in his pre-budget report on the 8th November 2000 that it would commence from April 6th 2001.1The LLP has been described as the '1st major addition to the range of business entities available in UK law since the Joint Stock Companies Act in 1855.'2 The Act was introduced mainly in response to auditors who claimed that operating as a partnership unfairly discriminated against them due to the doctrines of joint/several liability and unlimited liability. Under joint/several liability3, the negligence of one partner will mean that all partners are liable. As s10 of the partnership Act states 'partners are liable for the torts of their partners acting in the ordinary course of business.' Joint/several liability extends to the principle that negligent partnerships are called upon to provide 100% of the damages even if one partner is only 1% at fault.4 Unlimited liability5 is the idea that all partners are liable for the personal debts of the partnership. ...read more.

Middle

There will also be no need for LLPs to hold AGMs, as companies are required to do. The major difference, which may make partnerships think twice about becoming an LLP, is new disclosure requirements. LLPs are required to open up their accounts for public inspection and audited accounts will have to be filed with Companies House under the accounting standards of a 'true and fair' view. This aspect of an LLP was introduced to protect creditors who may lose out under limited liability. The Limited Liability Partnership was brought into effect due to concerns amongst professional bodies (and especially auditors) over the rise in legal actions brought against them. This was due to the joint/several liability doctrine and unlimited liability their members had for the firms debts. Indeed these concerns were often described, as 'unrealistic expectations and/or deep pocket syndrome'18 which are references to the vast amounts of money partners were having to pay out in claims, as demonstrated by the BDO Binder Hamlyn case. Originally, the main audit firms campaigned for a change in the rules of unlimited liability and joint/several liability. It was felt by the Law Commission in 1996 that these reforms wouldn't stem the tide of litigation or protect non-negligent partners.19 It was thought that LLPs would provide the answer and this seems to suggest that LLP's have only originated in the last few years. ...read more.

Conclusion

In return for this, LLPs have had to disclose to the public more of their activities and finances. The internal set-up of LLPs will be based on the ethics of partnership law although the Partnership Act will no longer apply, with the relevant law being the Limited Liability Partnership Act and delegated legislation. LLPs will also be treated as partnerships for tax purposes so that the decision to incorporate as an LLP is tax transparent. The introduction of the limited liability partnership act was well received by the professional bodies with all the major accountancy groups such as KPMG, Pricewaterhouse Coopers and Ernst & Young becoming LLP's. The LLP is not really a new innovation in Britain. They are common in the US, Jersey and other foreign jurisdictions. A major reason for introducing them was to prevent partnerships from going abroad to incorporate as an LLP. There have also been small glimpses in the past that the idea of a British LLP has been considered before but no action has been taken. Suggestions that the Limited Partnership act of 1907 was a first evolutionary step towards a Limited Liability Partnership may be incorrect but there is no doubt that with many partnerships starting to incorporate as LLPs, they truly are an innovation in themselves. ...read more.

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