The Chartered Institute of Taxation (CIOT) has written to the Department for Business, Innovation & Skills (BIS) regarding the Government’s proposed prohibition of corporate members of LLPs say Harris & Co accountants Northampton #accountantsnorthampton
This follows the publication of the Government’s response to its discussion paper on Transparency and Trust: Enhancing the Transparency of UK Company Ownership and Increasing Trust in UK Business which 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 the CIOT sees the logic in preventing corporate directors of limited companies, it is concerned about the Government’s new proposal to include LLPs in the prohibition.
The 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:
‘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.’
In its letter, the CIOT states that corporate LLPs are often used for valid commercial reasons and highlights 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.
The CIOT says it does not see 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.
The ICAEW has also raised concerns regarding this prohibition.
The CIOT’s letter is available here.