CIOT has joined calls for the government to drop plans to ban corporate members of limited liability partnerships (LLPs) stating that the move would have a detrimental effect on the structure of partnerships and hit the venture capital sector
This follows a similar submission from the ICAEW to BIS last month.
CIOT has written to the Department for Business, Innovation & Skills (BIS) expressing strong reservations about the proposals, which were outlined in the government’s response to a BIS discussion paper on Transparency and trust: enhancing the transparency of uk company ownership and increasing trust in UK business.
This paper contains a paragraph (para 169) indicating that the government is considering extending its proposal to outlaw corporate directors (where a company director is another company), subject to limited exemptions, to also outlawing corporate members of LLPs.
There was no mention of this idea in the original consultation.
While CIOT accepts the logic in preventing corporate directors of limited companies, it is concerned about the government’s new proposal to include LLPs in the prohibition.
CIOT says that LLPs are different to limited companies in that there is no distinction between directors and shareholders, so they combine into a single role, that of ‘member’. It says:
The letter states that ‘if companies are prohibited from being members of LLPs then that will also prevent companies forming LLPs, and there are many good and wholly commercial reasons why companies might want to form an LLP.
‘A prohibition on corporate members being designated members would have the disadvantage of stopping companies forming LLPs where all the members of that LLP are companies.’
CIOT states that corporate LLPs are often used for valid commercial reasons and stresses that an extension of these proposals to limited partnerships (LP) would have consequences for the venture capital sector as limited partnerships are commonly used in investment partnerships.
It does not accept that there is a case for including LLPs within the proposed prohibition and asks the government to reconsider this proposal and look at how its objectives of improving transparency and accountability can be achieved in another way.
CIOT’s letter is available at http://www.tax.org.uk/Resources/CIOT/Documents/2014/07/140703%20Prohibition%20of%20corporate%20members%20of%20LLPs%20-%20CIOT%20letter%20to%20BIS.pdf
To find out more about the impact of the proposals read analysis by Kathryn Cearns, consultant accountant at Herbert Smith Freehills - LLPs: what’s the point of banning corporate members https://www.accountancylive.com/llps-whats-point-banning-corporate-members