Limited Liability Partnership

According to Chris Cook, of the Open Capital Movement, the Limited Liability Partnership creates innovative possibilities for the development of a 'Cooperative Capitalism'.

Background

From Chris Cook:

1.

"Out of the primeval Capital swamp there is emerging a new animal - the "Capital Partnership" - based upon a curious hybrid of a commercial company and a partnership, known as a Limited Liability Partnership (LLP). The LLP is already beginning to make its mark in the commercial world - examples include a recent initiative by the AIM listed company Numerica and a new property portfolio investment scheme by the well known businessman Tom Hunter - but has implications for financing enterprises of all types, in particular those in the field of public investment.

During the early 1990s, professional partnerships such as Arthur Andersen became concerned that their individual partners' acceptance of liability for their firm's actions put them individually at risk of bankruptcy. Long before Enron, the City persuaded Jersey's Parliament to draw up an Act creating the LLP -and the British Government, fearing an exodus of professional partnerships to Jersey, passed the Limited Liability Partnership Act in April 2001. For the first time anywhere in the world, it became possible to form a corporate body -an entity with a legal existence independent of its individual members - which had both collective limited liability and the mutual, co-operative characteristics of partnerships.

There are now over 7,000 LLPs around the country. In part, the growth is because they're so easy to create: two designated members must complete an application downloaded from the Companies House website, and pay £95. There is no Memorandum of Incorporation, no Articles of Association and no Shareholder Agreement. In fact there isn't even any requirement for any written agreement at all - although only the most trusting dispense with them - since simple "default" provisions based upon partnership law apply.

The LLP has two key attributes: firstly it is an "Open" Corporate body (NOT legally a partnership as one would expect from the name) in which any stakeholder, whether or not they are Investors may become Members, thereby aligning their interestswith other members. Secondly, the LLP makes it possible for those who invest Money in an enterprise or in Capital assets such as Land to be members of a "Capital Partnership" alongside the users of the Capital or Capital Asset thereby replacing the usual adversarial contracts between those who finance an enterprise or asset and those who utilise it.

In essence, all these stakeholders are brought inside the partnership, so their interests are aligned; it's quite a change from traditional structures, which pit stakeholders in competition against each other. The LLP delivers an ideal combination of the collective and the individual; it's flexible and easy to establish while its partnership characteristics are robust enough to make it attractive to the private sector." (http://www.opencapital.net/theory.htm)

With this new model:

"All that is necessary is to find investors prepared to share in the revenues generated by productive assets such as schools, hospitals and railways on the basis that they receive an agreed inflation linked rental in respect of the Capital used.

That is the measure of the "Open" form of Capital currently emerging - simply a proportional "share" of revenues for a period of time." (http://www.opencapital.net/theory.htm)

2.

"From 1844 onwards in the UK it has been mandatory for partnerships with more than 20 partners to be incorporated – the result being Corporate Partnerships with unlimited liability. In 1907, it became possible for Partners to limit their partnership individually rather than collectively within a UK partnership at the cost of being unable to participate in the management of the partnership. This model routinely continues in the USA where it is the normal structure for professional partnerships.

In the late 1990's UK professional partnerships, faced with the prospect of individual bankruptcy as a result of litigation against the firm, successfully lobbied for protection, which arrived in the shape of the Limited Liability Partnerships Act 2000 and came into effect on 6 April 2001. Since then over 7,000 UK LLP's have been incorporated, for the most part from conversions of partnerships previously with unlimited liability.

The UK LLP is supremely simple and remarkably flexible. The only requirements are for two "Designated Members" to complete an Application Form obtainable at the Companies House web-site and to return it with the requisite fee of £95. There is no requirement for the mandatory and arcane Victorian vintage Memorandum of Incorporation and Articles of Association – the prescriptive Contracts between Members laid down by Statute – and no need for a supplementary Shareholder Agreement tailoring these Contracts to the precise present day needs of the Members in the relevant Enterprise. All that is needed is a simple ‘Member Agreement’ – a legal protocol which sets out the Aims, Objectives. Principles of Governance, Revenue Sharing, Dispute Resolution, Transparency and any other matters that Members agree should be included. Amazingly enough, this Agreement need not even be in writing, since in the absence of a written agreement Partnership Law is applied by way of default.

While a UK LLP should be a business run "With a View to Profit" the proposed Enterprise Model redefines the relationship between stakeholders in a way that literally removes the very concept of Profit and Loss – a subject to which we will return. The ease of use and total flexibility enables the UK LLP to be utilised in a way never intended – as an ‘Open’ Corporate partnership." (http://www.moq.org/forum/chriscook/ifnotglobal.html)

More Information

1. A good information page for start-ups, at http://www.startinbusiness.co.uk/features/ch_260301_llpforms.htm
2. Open Corporate Partnership