The members of a limited liability partnership have such liability to contribute to its assets in the event of its being wound up as is provided for by virtue of this Act.
Accordingly, except as far as otherwise provided by this Act or any other enactment, the law relating to partnerships does not apply to a limited liability partnership. The Schedule (which makes provision about the names and registered offices of limited liability partnerships) has effect (http://www.opsi.gov.uk/acts/acts2000).
purpose of this is to introduce a new form of legal entity known as Limited Liability Partnership (LLP). This will help resolve the difficulties arising in the traditional partnerships for larger professional practices. The LLP is not limited to large companies. The professionals who are usually involved in this partnership are the law firms or accountancy that can have partners' world wide. LLP is an alternative business vehicle that gives the benefits of limited liability but the members can have the flexibility in forming the internal structure as a traditional partnership. It composes of both the corporate and partnership characteristics.
The LLP has its own benefits that make the partnership more interesting. The limited liability is one of the enticing attribute of LLP that includes protecting the partners or members personal assets such as cars, homes, stocks and etc., This limited liability varies depending on the location of the partnership. It protects the partner in errors and negligence. Another advantage of LLP is the flexibility afforded to the entity through its management structure. Corporate formalities need no further observation as normally imposed by corporations. Pass-through tax treatment in LLP is passed through to its partners or members and taxed at the individual partner or member level. Flexible capital structure - owners are asked to provide flexibility in setting up a capital and compensation structure. Members or partners can distribute profit in any manner agreed by the corporation. (Suzuki, J., 1999).
Limited Liability Partnership is not sometimes taken into consideration because of the following reasons ( Derrick G. 2003-2004 ):
1) Once become bind with LLP, the money and property contributed becomes owned by the partnership unless otherwise indicated in the agreement. The contributor is not entitled for a return unless otherwise agreed by the members.
2) LLP varies in legalities and liabilities by state. Some state does not recognized the LLP, do not have the easy of transfer and investment that a corporation structure provides and therefore are regarded as less preferable to other business forms.
3) All income allocated to the owners is subject to self-employment tax. Only a portion of salary allocated for dividends is exempted for SE tax.
4) Since the LLP owners are not employee they are not entitled for a deductions for Medical expenses such as health insurance and other medical expenses.
5) The LLP are needed to provide $500,000 of security against claims, either through insurance, escrowed deposits, letter of credit or security bonds. Potential loss of limited liability
Aside from the above reasons why it is not yet taken up by other
companies is because of its infancy. Since it is a new structure the topic about tax and legality are not yet polished.