Can I restructure my business from an LLP to a Limited Company?

Restructuring your business from one type to another is possible, but it may include steps or procedures that you might not have thought about.

It is not as simple as simple transforming one business into another. In this case, you would need to incorporate a new Limited Company (NewCo) and then transfer the assets of the Limited Liability Partnership (LLP) to the NewCo.

There are several stages that need to be completed to achieve the restructure.

Stage 1 – Compliance and clearance

Depending on the nature or size of a business, several compliance ‘hurdles’ may need to be tackled, in order to move or progress the file forwards. Bodies such as the Competition and Markets Authority may need to provide you with their approval if the market share will change as a result of the transaction and changes in a way that raises concerns or distorts competition. Other considerations could be the National Security and Investments Act, whereby the particular nature of the business itself is caught by the act, therefore meaning that government approval is required to complete the transaction itself. A final point to consider is tax clearance, and whether or not clearance is required for a particular type of tax relief that you may be trying to benefit from in the transaction.

Other governing bodies may need to get involved, depending entirely on the nature of the business, and this will be on a case-by-case basis – which is why it is important you seek the necessary legal advice.

Stage 2 – Incorporate your new limited company and adopt of articles of association

You will need to create the NewCo, which will become the trading company and the company that will have the LLP’s assets transferred to. It is fairly straightforward to incorporate a business, and you will need to ensure that you adopt articles of association that meet your requirements and desires. This is something you ought to seek advice on and something that we can draft for you.

Stage 3 – Business assets transfer

The assets of the LLP will need to be transferred to the NewCo. These include all the assets that are required to run the business, such as any plant or machinery that exists, as well as any contracts and goodwill. Several documents will need to be drafted to affect this, including a transfer agreement and additional ancillaries. Like all agreements, the transfer of assets from the LLP to the NewCo will need to be in exchange for consideration. In a restructure like this, this is usually done in the form of issuing shares of the NewCo to the LLP members. If there are any outgoing members of the LLP, they can be paid in cash if desired.

Both employment and property elements will need to be looked at and advised upon. In an asset transfer, it may be the case that the employees being transferred are protected by the TUPE Regulations. You must ensure that these are considered, and if necessary, met. The members of the LLP should resign from the LLP and enter new contracts with NewCo.

The LLP may have a lease in place or own a freehold property. This will need to be moved to the NewCo and depending on the type of property will depend on the transaction required. This is a point that our property time can advise upon accordingly.

Stage 4 – Regulation of long-term relationship – shareholders agreement

When the transfer is complete, it would be wise to ensure that the shareholders of the NewCo have a shareholders agreement in place – to provide certainty and clarity on the ongoing relationship with each other and the NewCo.

What are the benefits of changing from a Limited Liability Partnership to a Limited Company?

There are several benefits, some of which we can advise upon and others you should discuss with your accountant. Limited companies are able to retain profits with the business, rather than paying them out through salaries or dividends, but LLPs must pay out all profits to its members. LLP profits and dividends are subject to different rates of tax – which will be a conversation with your accountant. Companies also have the advantage of only needing at least one owner, whereas LLPs need two. It is easier to sell your shares in a company rather than sell an LLP. You will need to transfer the assets in an LLP sale, as well as ensure customer contracts are transferred as well as employees.

Wilson Browne has a vast amount of expertise in company restructures, and as usual, are all the help you need for you and your business transactions. Contact a member of our Corporate & Commercial Team today on 0800 088 6004