01: Introduction

Under the Limited Liability Partnerships Act 2000, limited liability partnerships (LLPs) have an unlimited ability to enter into transactions separately from their partners. A LLP’s partners, known as members, will only have to contribute to its assets on a winding-up if they have agreed to do so in the LLP agreement.

Anyone may use a LLP as a business vehicle, but larger accounting and legal firms have taken on the LLP form as protection against potentially large legal claims that could cause the personal insolvency of all the partners because of one partner’s negligent advice. In an ordinary partnership, the partners are ‘jointly and severally’ liable to meet the claim personally if the firm’s assets and insurance provisions are insufficient. Joint and several liability means that each individual partner is liable for the joint debts of the partnership and each partner is liable for the whole amount if the others cannot pay. In a LLP, the firm is still liable, but only the member(s) responsible for the negligent advice are personally liable. Such personal liability will not arise if the member(s) who gave the negligent advice made it clear on all the documentation with the client that the advice was given as an ‘agent’ of the LLP. In that case, the LLP would be liable and, of course, such liability is limited.Last Updated