Mon, Nov 10, 2014

LLP Conversion

Michael Beart speaks to HFMWeek about the tax advantages of converting an LLP business into a Ltd.

Since their introduction in 2000, limited liability partnerships (LLPs) have been an increasingly popular structure through which to operate a UK business, due to the flexibility they afford to their members. LLPs became the vehicle of choice for much of the investment management industry following a wave of conversions from traditional limited company structures (Ltd). However, for some LLP businesses, the combination of the new partnership taxation rules that came into force from 6 April 2014 and the reduced rate of corporation tax will tip the balance back in favor of a Ltd structure.

Converting LLPs to a Ltd vehicle is a hot topic in investment management circles. However, in practice, the benefits are perhaps most compelling for mature UK-centric managers with a stable senior management team who are looking to consolidate their position. Managers in the start-up phase tend to benefit from accessing loss relief as partners, as well as the ability to attract and incentivize personnel with a tax-effective equity stake in the business. However, once a critical mass is achieved, these considerations slide down the pecking order and returning value to stakeholders becomes a priority.

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