The Finance Bill (currently before Parliament) contains measures dealing with ‘mixed partnerships’ whose members include both individuals and companies. These are designed to counter arrangements under which profits are artificially diverted to company members in order to take advantage of the fact that corporation tax rates are much lower than the 40% and 45% rates payable by many individuals. These measures apply to all types of partnership including limited liability partnerships (LLPs).
In a surprising development it has now emerged that the government is considering whether it should continue to be possible for companies to be members of LLPs at all.
In July 2013 the Department of Business Innovation and Skills (BIS) issued a consultation document dealing with the issue of transparency as regards the ownership and control of UK companies. This examined a number of proposals, including revisiting the question of whether it should cease to be possible for a company to be a director of another company (a ‘corporate director’). The concern here was that the appointment by a company of a corporate director can mask the identity of the individuals who actually control the company.
BIS’s response document of 16 April 2014, which reports on the representations received and on how the government intends to proceed, indicates that legislation will be introduced to prohibit the use of corporate directors, subject to certain exceptions. It also states that the BIS can "see a case for consistency" in the treatment of LLPs, which would involve the prohibition of corporate members. It asks for views on this proposal, which was not included in the original consultation document.
In the opinion of Moore Stephens, this would be an unhelpful change, limiting flexibility for business structures and involving enormous time and expense in ‘unwinding’ existing arrangements. The issue is a very different one from the use of corporate directors in a company, since members of an LLP cannot be considered the equivalent of directors.
Further reading:BIS’s consultation documentExecutive summary of this consultation documentRecent response document
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