Converting a partnership to an LLP

 A Limited Liability Partnership (LLP) may be broadly described as a limited company on the outside and a partnership on the inside. As an increasingly popular alternative business vehicle, many businesses are switching from a regular partnership to a limited liability partnership and our lawyers will be pleased to help you achieve a smooth and efficient transition into your new business structure.


What is an LLP?

A Limited Liability Partnership (LLP) is a cross between a traditional partnership and a limited liability company.  An LLP operates as a separate legal entity which also offers a number of benefits, such as limited liability for its members, the LLP can retain assets in the company name and the tax regime resembles that of an ordinary Partnership.

Transferring a Partnership to an LLP

The LLP will be incorporated as a Company at Companies House and this involves transferring all the existing business and business assets of the partnership to the new LLP.

There are a number of factors to consider, for instance:

1. Are there any regulatory consents, approvals and licences required for the business of the LLP?

2. What are the assets of the Partnership and will they all transfer to the LLP (property, goodwill, intellectual property rights etc.)?

3. Are there any contracts between the Partnership and third parties which the LLP is to take the benefit/burden of? E.g. suppliers, financing agreements for equipment, printers, software licences etc. and are those contracts capable of novation?


Things to bear in mind

The contribution (in terms of time and money) made by each of the partners to the business needs to be considered in some detail.

For the transfer to go as smoothly as possible, the right people ought to be notified at the right time. You should prepare to notify:

1. Employees

2. Suppliers

3. Customers

4. Bank/finance providers

5. Landlords

TUPE (Transfer of Undertakings (Protection of Employment) Regulations will apply to the transfer. There will be an obligation to consult with employees about the transfer.

When new members join the LLP, then either they should be made a party to the LLP agreement (for example, by entering in to a deed of adherence) or a new LLP agreement should be entered in to. If a member is retiring/leaving the LLP then appropriate steps should be taken to record the fact that they are no longer a party to the agreement, for example, by entering in to a deed of retirement.

You should be preparing to transfer any licences, trademarks and patents to the LLP and register documents with the appropriate authorities. You should check whether the Partnership has existing contracts which restrict a transfer, as that could cause you to be in breach of contract unless you obtain the necessary consents.

Required Contracts

1. Transfer Agreement for the transfer of the business of the partnership to the LLP;

2. Deed of assignment of goodwill (including IP rights if any);

3. Novation agreement for each contract with third parties (if any) which need to be formally novated to the LLP;

4. Limited Liability Partnership Agreement between the members of the newly formed LLP

5. Salaried members’ agreements; and/or

6. Third party consents where applicable

How long does it take?

This depends upon the complexity of the arrangements but generally we would hope that it could be dealt with within four weeks.


Converting a partnership to an LLP tips

Don’t be embarrassed in the excitement of setting up a new business venture to discuss what would happen if something goes wrong. That will help the parties focus on clarifying key issues and avoiding an acrimonious dispute at a later date.

Meet the Converting a partnership to an LLP team