Media and Press

Limited liability partnerships up 50%
Thu 18th Mar 10 - 11:26

Article written by Adam Bannister

The number of firms opting for limited liability partnerships (LLPs) has soared by 50% in the past four years.

Businesses have increasingly eschewed traditional partnership agreements in order to protect their assets against future claims and reduce personal responsibility amid the worst recession since the 1930s. Disputes within partnerships have increased as financial conditions deteriorated.

Figures from Companies House show that 37,301 businesses have become LLPs in the past year.  Traditional Partnerships now represent 13.5% of UK businesses, down from 14.1% in 2008, according to the Office of National Statistics.

An LLP effectively combines aspects of a traditional partnership and a limited company. Its members are self-employed but the LLP is a legal entity, like a company, and the members have limited liability for business debts.

Mark Briegal, head of partnership law at Manchester-based law firm Ralli, isn’t surprised by the surge in LLPs.

“In a downturn, financial pressures can mean claims against businesses increase,” he says. “Tight cash-flow tends to increase disputes between partners.

If a partnership agreement is not watertight, it could mean dire consequences for the partners involved. Becoming an LLP offers members reduced personal responsibility and increased protection, should the business run into trouble, which explains the rise in this type of partnership.

“We’re seeing a rise in the number of clients coming to us for advice on a range of partnership issues, not only on disputes and dissolutions, but also at the outset of a business partnership.

“It is clear firms have learnt their lesson from the recession and are now choosing LLPs as a preferred option, rather than traditional partnerships, proving they are keen to protect themselves against future disputes.”

Briegal is keen to stress that forming an LLP is does not guarantee the avoidance of disputes, and that effective membership agreements are vital to resolving them when they arise.

“LLPs have members rather than partners and the members of the LLP need a good membership agreement to regulate their conduct and have in place a framework to resolve disputes among themselves.”