Corporate Members of LLP

Corporate Members of LLP

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I seem to recall reading that Corporate members of an LLP would no longer be associated in the context of (say) a firm of accountants running as a LLP, with all the partners being corporate bodies instead of individuals. 

However when I read up on the rules I keep hitting up against "Substantial commercial interdependence" under s27 CTA 2010 (revised 2011)   

I seem to be missing the point here, as my brain is thinking that by definition is the company is supplying the partner and the partners are the heart of the business, then the one thing they are is "commercially interdependent".

Is the point that the trade occurs in the LLP, and therefore there is no trading in the individual companies themselves? All that is going to happen there is the cash gets shoved through and out to the shareholders.

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By George Attazder
18th Feb 2013 11:57

Corporate members of a partnership...

... have never been associated, unless they happen to be under common control (taking a person together with their associates where appropriate).

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By ireallyshouldknowthisbut
18th Feb 2013 14:01

.

George, I thought business partners were automatically deemed to be "associates" under the old rules. 

So you could have the absurd position of a 1000 partner firm where two partners who have never even met, let alone worked together would be associated by virtue of working for the same firm.

Or am I just making this up!

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By George Attazder
18th Feb 2013 14:30

No you're not making it up...

... but you're confusing "associates" (in S.448 CTA 2010) with "associated companies" (in S.27).

You need to look at who you're considering is controlling the companies.

Example 1

For example, kindly be imagining that individuals A, B and C  are in partnership, and that A has a company V Ltd that he 100% owns, and B has a company W Ltd that he 100% owns.

Now the first point to note is that I've assumed that both A and B are males. The same is true of C.  That's because ladies are supposed to stay at home and cook and clean and things, and not worry themselves with complex matters like running businesses.

Anyway A, B and C are each others asssociates, as defined in S.448.

So prior to the change we would have attributed the rights of B and C to A, and those of A and C to B, and those of A and B to C. That would have resulted in V Ltd and W Ltd being under common control, and, therefore, associated companies.

That's now changed and the attributions aren't made if there isn't a relationship of substantial commercial interdependence between the companies.

Example 2

Now let's consider your query.

Again, we have three men; A, B and C and they now each 100% own a corporate partner in a partnership; respectively X Ltd, Y Ltd and Z Ltd.

Now X Ltd, Y Ltd and Z Ltd are associates within the S.448 definition, but with or without attribution are they under common control, and, therefore, associated companies?

X Ltd is 100% controlled by A. Does he have any associates? Absent any connection with B or C (they don't connect with each other via their corporate partners), there aren't any with whom we need to concern ourselves. So he isn't attributed any right in the other companies to make them associated companies.

Likewise with B and Y Ltd and C and Z Ltd. Both before and after the change these companies will have been associates of each others (within the S.448 definition), but not associated companies for the purposes of S.27 (or even S.449 for that matter).

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By ireallyshouldknowthisbut
18th Feb 2013 14:44

Thanks George for taking the time to lay that out. Penny finally dropped!

My ramshackle tax background strikes again.

PS don't forget ladies have to stay at home looking after children too, as well as changing into a nice dress just before you get in and putting some lippy on so they can look pretty while you eat your tea from behind your newspaper full of man stuff while they read fluffy magazines about knitting.

 

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