Partnership to LLP - Capital Contribution

Partnership to LLP - Capital Contribution

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I have a client, who is a partnership, who wants to convert to a LLP. The two partners, husband and wife, share the profits 50/50 and currently have around £8k profit each left in the business.

I have done lots of research and would just like to confirm a couple of points, as some of the legislation and SORP seems a bit “woolly”:

1. Is it correct that when the partnership is incorporated, that there must be a capital contribution that stays in the business and must not be withdrawn?

2. Is it acceptable to reallocate, say £100 each, of their existing profits and make that their capital contribution?

Thanks for any help.

Replies (3)

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By catlady
21st Oct 2014 16:11

Well, I had a strong coffee, propped my eyes open with matchsticks and re-read the SORP.....I now have my answer, phew!

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By Justin Bryant
24th Oct 2014 14:00

Answers

1. Unlike Ltds, LLPs have no share capital and are not subject to any capital maintenance requirements (although s1(4) LLPA 2000 requires the members of a LLP to contribute to its assets in the event of it being wound up in certain cases). Regulation 7(1) of the LLP Regulations 2001 provides that all LLP members are entitled to share equally in the capital and profits (but not losses) of the LLP (as the default provision if not expressly provided for in an LLP agreement). 2. See 1 above.

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Library Drinking
By Cambridge Business
24th Oct 2014 14:53

LLPs are almost as flexible as partnerships

Your H&W partnership can do what they like.  No need for capital contribution and can share profits as they see fit.  

Just be careful that if either of them is paid a "salary", that the "disguised employment provisions are not invoked, as then there may need to be capital invested.

But on the numbers you are indicating and the H&W being the only members, they would probably fail condition B, (I think-from memory), re active participation in the management of the firm.

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