12 June 2009: The information on this page is out of date and should be read in the light of recent changes to the Solicitors' Code of Conduct. Any references to law should also be checked.
1. What is a Limited Liability Partnership (LLP)?
1.1 Our definition
An LLP is defined in rule 24 of the Solicitors' Code of Conduct 2007 as a limited liability partnership formed by being incorporated under the Limited Liability Partnerships Act 2000.
Therefore, for the purposes of the Solicitors' Code of Conduct 2007, the Solicitors' Recognised Bodies Regulations 2007 and these notes, "LLP" does not include a limited liability partnership formed anywhere but in England and Wales or Scotland.
1.2 Statutory provisions
For general information about the nature of an LLP see the Companies House guidance on limited liability partnerships. You should note the following points in particular:
- despite the name, an LLP is not a partnership (although it does have some of the organisational flexibility of a partnership),
- partnership law does not apply to an LLP,
- an LLP has members and not partners,
- although an LLP is a body corporate it is not a company and it is unlike a company in a number of important ways:
- it does not have shares or shareholders,
- it does not have directors - only members,
- it does not have memorandum and articles of association, and
- any members' agreement is a purely private document.
2. What features does an LLP have?
2.1 Tax considerations
LLPs are, in general, treated like partnerships for tax purposes. A transition from partnership to LLP, if handled correctly, need not give rise to a tax charge.
2.2 Limitation of liability
A large claim against a solicitors' partnership can put the individual partners' private assets at risk if the claim falls wholly or partly outside the partnership's professional indemnity insurance cover. If this happened in relation to a solicitors' LLP then the individual members are protected against this risk to some extent.
2.2.1 Liability of the LLP, its members, etc.
An LLP has a legal personality of its own and is fully liable in contract and tort for the acts and defaults of its members and employees. Unlike a partner in a general partnership
- (a) an individual member of an LLP is not in general liable in contract or tort, by virtue of being a member of the LLP, for the acts or defaults of fellow members or of the LLP's employees, and
- (b) subject to certain statutory qualifications such as section 214 of the Insolvency Act 1986 (wrongful trading), a member of an LLP is not personally liable for the debts and obligations of the LLP.
The liability of an individual member of an LLP therefore will be significantly less than that for a partner in a partnership but it would be dangerous to assume that an individual solicitor practising through an LLP is free from any personal liability. For example,
- (a) a member might be liable in relation to a personal guarantee given as to the contractual obligations of the LLP; and
- (b) although in general a client would look to the LLP for redress in relation to negligence, practice through a limited liability partnership would not protect an individual working in the practice from liability in relation to his or her own negligence.
2.2.2 Limiting liability by agreement with a client
An LLP may limit liability by agreement with a client. The LLP's own liability may not be limited below the minimum level of indemnity insurance required under the Solicitors' Indemnity Insurance Rules. Any such agreement would also be subject to certain regulatory and legal constraints (see rule 2.07 of the Solicitors' Code of Conduct 2007, the guidance to that rule and also paragraph 24 of schedule 2 of the Administration of Justice Act 1985).
3. The need to be a recognised body
3.1 Statutory provisions
A recognised body is a body corporate recognised by the Solicitors Regulation Authority under section 9 of the Administration of Justice Act 1985. An LLP which carries on the practice of a solicitor or a registered European lawyer (REL) must be a recognised body. A body corporate which provides the services of a practising solicitor to the public in England and Wales may commit offences under sections 20-25 of the Solicitors Act 1974 if it is not a recognised body.
The rules and principles governing solicitors' conduct apply to a recognised body as well as to the solicitors, RELs and RFLs (registered foreign lawyers) who participate in it.
For the legislative framework under which a recognised body is regulated by the Solicitors Regulation Authority see
- sections 9 and 10 of, and Schedule 2 to, the Administration of Justice Act 1985
- the Solicitors' Incorporated Practices Order 1991 and
- the Solicitors' Incorporated Practices (Amendments) Order 2001.
Rule 12.01(1)(d) and 12.02(1)(d) of the Solicitors' Code of Conduct 2007 require an LLP to be a recognised body in order to carry on the practice of a solicitor or REL in England and Wales. It is therefore vital to ensure that recognition as a recognised body is obtained before the LLP begins trading as a solicitor's practice.
Rule 14 of the Solicitors' Code of Conduct 2007 governs the composition and structure of a recognised body and sets out some requirements specific to recognised bodies, including LLPs.
The Solicitors' Recognised Bodies Regulations 2007 govern applications for recognition and renewal of recognition.
4. Incorporating and structuring an LLP
4.1 How to incorporate an LLP
Companies House provides a comprehensive booklet on forming an LLP.
There is Companies House guidance on incorporating an LLP. Note that all members of an LLP must sign and date the application form. If you want to incorporate an LLP with a large number of members you may wish to confirm with Companies House that it will permit a duly appointed attorney to sign on behalf of the members.
4.2.1 Number of members
Section 2(1)(a) of the Limited Liability Partnerships Act 2000 requires an LLP to have at least two members in order to be incorporated.
Rule 14.05(2)(a) of the Solicitors' Code of Conduct 2007 also requires a recognised body which is an LLP to have at least two members.
An LLP's members can consist of an individual solicitor and a company which is owned and directed by that solicitor, provided that the company is a recognised body.
4.2.2 Persons who may be members
Under section 9 of the Administration of Justice Act 1985 the members of a recognised body which is an LLP must all be lawyers.
Rule 14.05 of the Solicitors' Code of Conduct 2007 specifies that the only persons who may be members are
- lawyers and bodies directly regulated by the SRA (solicitors, RELs, RFLs, and recognised bodies), and
- European lawyers and their firms based outside England and Wales ("non-registered European lawyers" and "European corporate practices").
Rule 24 of the Solicitors' Code of Conduct 2007 contains definitions for the terms recognised body, REL, RFL, non-registered European lawyer and European corporate practice.
4.2.3 Participation of a solicitor or REL
Rule 14.05(3)(a) of the Solicitors' Code of Conduct 2007 requires an LLP to have at least one member who is a solicitor or an REL—or alternatively, at least one member which is a recognised body which itself has a director (if it is a company) or a member (if it is an LLP) who is a solicitor or an REL.
If the last or only solicitor or REL within a recognised body dies then there is 14 days' grace to repair the position—see rule 14.05(3)(b) of the Solicitors' Code of Conduct 2007. In all other cases where a recognised body loses the last solicitor or REL, matters must be arranged in advance.
If a recognised body breaches this requirement its recognition can be revoked, so it is important for the members' agreement to allow for swift action to repair the position. Rule 14.05(4) of the Solicitors' Code of Conduct 2007 also requires that in other specified situations (where the last solicitor or REL either will not or cannot run the practice of the LLP) a new or additional member must be in place within 14 days.
4.2.4 Notification of change of membership
Under section 9(1)(a) of the Limited Liability Partnerships Act 2000, Companies House must be informed within 14 days of a member joining the LLP or ceasing to be a member.
Under rule 14.07(2)(c) of the Solicitors' Code of Conduct 2007 an LLP must notify the Solicitors Regulation Authority immediately when a member joins or ceases to be a member.
4.2.5 Disclosure of members' home addresses
The home addresses of all members of an LLP must be available for inspection by the public. Given the sensitive nature of some clients' affairs, this may be a problem for some solicitors. If disclosure is likely to put a member or a person in the member's household at serious risk of violence or intimidation, it may be possible to obtain a confidentiality order under the Limited Liability Partnerships (Particulars of Usual Residential Address) (Confidentiality Orders) Regulations 2002. There appears to be no mechanism to remove a home address that is already on the public register, so this is an issue you will need to think about from the start. However, by the time it becomes clear that you need an order, it may be too late.
It is anticipated however that the law in this area will change once the provisions of the Companies Act 2006 are applied to LLPs.
4.3 Registered office
For the statutory provisions about the registered office of an LLP see Part II of the Schedule to the Limited Liability Partnerships Act 2000.
For the rules about the registered office of an LLP which is a recognised body see rule 14.06 of the Solicitors' Code of Conduct 2007. Under that rule an LLP which is a recognised body must have at least one practising address in England and Wales and if the LLP is registered in England and Wales then its registered office must be a practising address of the company and must be in England or in Wales.
An LLP must notify the Solicitors Regulation Authority immediately of any change to its registered office or to any of its other practising addresses (see rule 14.07(2)(b) of the Solicitors' Code of Conduct 2007).
Companies House provides detailed information on choosing a limited liability partnership name.
The Registrar of Companies will not register two LLPs with identical names. It is possible, however, to reserve a name for an LLP (say, "Smith & Brown LLP") by registering a shelf company under that name ("Smith & Brown Ltd") and then, when you file the LLP's incorporation document, to simultaneously change the name of the shelf company. You will need to contact the LLP Team at Companies House a few days before filing the incorporation document.
The name of an LLP must comply with Part I of the Schedule to the Limited Liability Partnerships Act 2000. In particular
- if the LLP's incorporation document prescribes a registered office "in England and Wales" or "in Scotland" the LLP's name must end with "LLP", "llp" or "limited liability partnership",
- if the LLP's incorporation document prescribes a registered office "in Wales" its name must end with either one of the English language forms above, or one of the Welsh language equivalents "PAC", "pac" or "partneriaeth atebolrwydd cyfyngedig".
Under Part II of the Schedule to the Limited Liability Partnerships Act 2000, if an LLP's incorporation document prescribes a registered office "in England and Wales" it must use one of the English language forms, even if the registered office is actually in Wales.
Under rule 7 of the Solicitors' Code of Conduct 2007 the name of a recognised body must not be misleading.
It is also important to avoid choosing a name which suggests that the LLP is the same as an unrelated business providing similar services, as this may raise legal issues.
4.5 Notepaper, bills and publicity
Companies House provides a booklet on limited liability partnerships which includes guidance on notepaper, bills and other publicity.
Sections 82 and 84 of the Companies Act 2006 apply to an LLP. Under the existing provisions
- (a) an LLP's full corporate name must be shown on its website, stationary, bills, and various other documents; and outside all its offices (even if the office is a member's home);
- (b) an LLP's place of registration, registered number, the fact that it is a limited liability partnership and the address of its registered office must be shown on its notepaper, websites and on various other documents.
- Companies House also provide information on Publication of the name of the limited liability partnership and details to be shown on stationery.
- Section 4 of the Business Names Act 1985 (which will be repealed and replaced by Part 41 of the Companies Act 2006 on 1 October 2008) applies to an LLP. Under the existing provisions, if an LLP uses a trading name, its notepaper, orders, bills and receipts must give the LLP's registered name and
- (a) if there are 20 or fewer members, the members' names and their address for service, but
- (b) if there are more than 20 members, the members' names need not be listed if instead there is a statement that a list of the members is open to inspection at the LLP's (stated) main place of business.
- See also 5.6 below, for publicity requirements in the conduct rules.
5. Other requirements for a recognised body
Under rule 14.02(2) of the Solicitors' Code of Conduct 2007 an LLP which is a recognised body may do reserved conveyancing or probate work only if at least one member is
- a solicitor,
- an REL qualified to provide that service under regulation 12 or 13 of the European Communities (Lawyer's Practice) Regulations 2000,
- a recognised body which is a company with such a person as a director, or
- a recognised body which is an LLP with such a person as a member.
5.2 Member "qualified to supervise"
Under rule 5.02(1) of the Solicitors' Code of Conduct 2007 an LLP which is a recognised body must have at least one member who is a person "qualified to supervise", or alternatively, at least one member which is a recognised body which itself has a director (if it is a company) or a member (if it is an LLP) who is a person "qualified to supervise". The term "qualified to supervise" is defined within the rule itself.
5.3.1 Annual return to Companies House
An LLP must generally file accounts yearly at Companies House and details of the accounts filed at Companies House will be made available to the general public. There is a chapter on Annual returns on the Companies house website. Special provisions apply for small and medium sized LLPs.
5.3.2 Annual accountant's report to the SRA
An LLP which is a recognised body must also deliver an annual accountant's report to the Solicitors Regulation Authority under section 34 of the Solicitors Act 1974 (as amended) and paragraph 5 of Schedule 2 to the Administration of Justice Act 1985.
The obligation to deliver an annual accountant's report applies not just to the LLP but also to its members, so the names of all the members as well as the name of the LLP must appear on the accountant's report. The name of any assistant or consultant solicitor (or REL) who has held or received controlled trust money or operated a client's own account as signatory will also need to appear.
If the accountant's report is late, the solicitors and RELs who are (or should have been) named in the report will
- have to give six weeks' notice of their application to replace their practising certificates,
- be liable for an additional practising certificate or registration fee, and
- be at risk of having a condition imposed on their practising certificate or registration.
See sections 12(1)(ee), 12(4) and 12A(1) of the Solicitors Act 1974, and SRA form REG3—intention to apply.
5.4 Compensation Fund contributions
Under paragraph 6 of Schedule 2 to the Administration of Justice Act 1985, a recognised body which is an LLP must pay a Compensation Fund contribution when applying for recognition and for renewal of recognition. The initial contribution covers three years, at the end of which the LLP must apply for renewal of recognition and pay a further contribution.
In addition, all solicitor and REL members of an LLP must pay an annual Compensation Fund contribution when applying for a practising certificate or for renewal of registration.
If the LLP has not held or received client money then a reduced rate contribution will be payable.
RFL members of an LLP pay an annual Compensation Fund contribution when applying for renewal of registration if the LLP has held or received client money. The level of an RFL's contribution will depend on whether the RFL is based in or outside England and Wales.
For the detailed provisions about solicitors', RELs' and RFLs' contributions see the Solicitors' Compensation Fund (Foreign Lawyers' Contributions) Rules 1991 (PDF 47K).
5.5 Compulsory professional indemnity insurance
5.5.1 Qualifying insurance
A recognised body must have "qualifying insurance" under the Solicitors' Indemnity Insurance Rules 2007 unless it is exempt.
The general requirement is for an LLP to have a minimum level of qualifying insurance cover of £3,000,000 for any one claim. The cover must include the LLP and all its members, employees and consultants.
Under Regulation 2.1 of the Solicitors' Recognised Bodies Regulations 2007, the Solicitors Regulation Authority cannot grant recognition unless it is satisfied that the applicant LLP complies with or is exempt from the Solicitors' Indemnity Insurance Rules. Before applying for recognition, an LLP must therefore have
- arranged its policy of qualifying insurance, or
- obtained a written exemption from the Solicitors Regulation Authority.
If the LLP has one or more REL member(s) it may be eligible for total or partial exemption under Appendix 3 of the Solicitors' Indemnity Insurance Rules 2007.
5.5.3 Overseas offices
Offices of a recognised body which are outside England and Wales are subject to the indemnity requirements in rule 15.27 of the Solicitors' Code of Conduct 2007 and not to the Solicitors' Indemnity Insurance Rules 2007. Cover for overseas offices must be specifically negotiated with your insurers.
5.6 Rules about publicity
Under rule 7 of the Solicitors' Code of Conduct 2007
- the words "regulated by the Solicitors Regulation Authority" must be shown on the LLPs' notepaper,
- the notepaper must include either a list of the members, identified as members, or a statement that the list is open to inspection at the office,
- if the company has a member which is an unlimited company it must be stated in the list of members, either as part of the unlimited company's name or otherwise, that the unlimited company is a body corporate, and
- if the list of members includes non-solicitors, the list must identify the professional qualification of each member.
5.6.2 Describing a member as a "partner"
If your LLP wishes to refer to its members as "partners" you must ensure that the LLP continues to comply with the Companies Act 1985 and the Business Names Act 1985 (as amended by the Companies (Registrar, Languages and Trading Disclosures) Regulations 2006 (SI 2006 no 3429) and applied to LLPs by the Limited Liability Partnership Regulations 2001 and the Companies Act 2006.
5.6.3 Describing a non-member as a "partner"
Rule 7.01 of the Solicitors' Code of Conduct 2007 prohibits misleading publicity. Describing a person who is not a member of the LLP as a partner is potentially misleading and is allowed only in the following circumstances:
- (a) the person designated as a "partner" must be
- (i) a consultant or employee of the LLP with equivalent standing to a member, and
- (ii) entitled under the solicitors' rules to become a member of the LLP;
- (b) appropriate explanatory wording (see below) must appear on
- (i) the firm's notepaper, faxes, e-mails, brochures and websites; and
- (ii) any bill on which the word "partner" appears;
- (c) a clear distinction must be drawn between a member of the LLP and non-member described as a "partner"
- (i) in any agreement, terms of business letter or client care letter in which the word "partner" appears;
- (ii) when addressing any client or third party who is not in receipt of a letter, fax or e-mail; and
- (iii) in any formal context such as an affidavit, a statement to a court, or a communication with the Legal Services Commission.
Appropriate explanatory wording for a firm's notepaper, faxes, emails, brochures, websites or bills would be to the effect that:
- "We use the word 'partner' to refer to a member of the LLP, or an employee or consultant with equivalent standing and qualifications."
If your LLP wishes to refer to a list of "partners" as well as the statutory list of members, this might be done by way of some such wording as:
- "A list of the members of the LLP is displayed at the above address, together with a list of those non-members who are designated as partners."
The guidance above relates to professional obligations only and separate specialist advice should be considered as to any other legal implications of members being held out as "partners".
6. Converting a partnership to an LLP
6.1 Client accounts
An LLP's client accounts must be in the name of the LLP (see rule 14(3) of the Solicitors' Accounts Rules 1998). If a partnership converts to an LLP and the whole of the practice is transferred to the LLP, all money from the partnership client accounts should be placed into accounts in the name of the LLP or the client accounts should be re-named with the bank's agreement.
A recognised body cannot share a client account with another firm. If part of the practice of the partnership is to continue, or if the partnership is to continue to hold client money, two accountant's reports will be needed—one for the partnership and one for the LLP. This obligation will continue until the partnership ceases to hold client money, at which point a final accountant's report must be delivered for the partnership within six months—see rule 36(5) of the Solicitors' Accounts Rules 1998.
Conversion from a partnership to an LLP may also affect the nature of money previously held as "controlled trust money". For example, when two partners in a partnership are the only trustees, there is a controlled trust—but when two members of an LLP are the only trustees, there is not a controlled trust (see rule 2(2)(h) of the Solicitors' Accounts Rules 1998, and note (iv) to that rule). Therefore, controlled trust money held by two partners in a partnership will no longer be controlled trust money after the partnership converts to an LLP and the two partners become members of the LLP. The money must instead be held as client money in a client account of the LLP.
6.2 Insurance cover
If a partnership transfers the whole of its practice to an LLP, the LLP is a "successor practice" for the purpose of the rules and the LLP's qualifying insurance will cover claims arising from the previous practice of the partnership.
If a partnership transfers only some of its practice to an LLP and continues in practice alongside the LLP, the partnership and the LLP will each need their own qualifying insurance.
In either case, it is advisable to discuss your proposed practising arrangements with your insurers so that you can be sure that all activities are appropriately insured, whether undertaken by the former partnership, its partners and employees or by the new LLP, its members and employees.
6.3 Notifying clients and getting consents where needed
You will need to inform clients of the conversion to an LLP, obtain consents where necessary and make the necessary changes to your "client care" information.
6.4 Other contracts and third party consents
You will need to review other business documentation relating to the former partnership and if necessary change it and obtain any necessary consents. The review will need to include contracts with employees and suppliers, leases, income tax/national insurance arrangements and VAT arrangements.
6.5 Informing third parties
A number of third parties and legal authorities will need to be notified and careful consideration will need to be given to this. For many partnerships, this would include
A partnership converting to an LLP will need to make sure that all the requirements of rule 7 of the Solicitors' Code of Conduct 2007 are met for an LLP, with immediate effect from the date upon which the LLP begins trading.
7. What are the next steps in becoming an LLP?
7.1 Seek professional advice where necessary
The information provided in this guidance is intended to provide an overview of important matters which should be considered when forming an LLP/recognised body but is not an exhaustive or in-depth guide. If you are considering converting your partnership to an LLP, you may need to obtain professional advice and guidance as to your individual circumstances, in particular as to the tax and accounting implications involved and on matters of company, tort or contract law.
7.2 Liaise with Companies House
For specific enquiries relating to English/Welsh LLPs, you can contact Companies House main office. Information about incorporating an LLP is also available from Companies House, including the Companies House application form LLP2. A great deal of planning is needed to begin practice as an LLP and you may wish to discuss your proposed registration with Companies House at an early stage.
Please visit their website for contact details.
7.3 Liaise with the SRA
7.3.1 The Professional Ethics Guidance Team
The team can assist with any specific queries which you might have as to the rules of professional conduct which should be considered for your individual circumstances.
7.3.2 The application process to become a recognised body
For an application form (LLP1), contact us.
Your application will be dealt with by our Operations Unit.
To apply for recognition as a recognised body you will need to complete Form LLP1 and this must be signed by one of the LLP's members on behalf of the LLP. Information and documentation which must be provided with the form include the following:
- evidence as to the LLP's qualifying insurance under the Solicitors' Indemnity Insurance Rules,
- a declaration that the LLP complies with rule 14.05 of the Solicitors' Code of Conduct 2007 (as to its membership),
- a copy of the LLP's certificate of incorporation,
- the LLP's application fee (which covers a 3-year period), and
- the LLP's Compensation Fund contribution (which covers a 3-year period).
You should allow for the application to take up to 30 days to process before recognition is granted.
We have discretion to refuse an application for recognition under Regulation 2 of the Solicitors' Recognised Bodies Regulations 2007 and there is a right of appeal to the Master of the Rolls against refusal provided for by Regulation 3 of the Regulations.
Once recognition is granted, we will provide you with a certificate of recognition.
7.4 Duration of recognition
7.4.1 Current provisions
At present, recognition lasts for three years unless it expires automatically.