PracticeConsultingLLPs too costly for small businesses

LLPs too costly for small businesses

Limited liability partnerships may not be a viable option for many partnerships and could be too costly for small firms, according to mid-tier firm PKF.

According to PKF, changing to LLP status is ‘time consuming and expensive due to financial accounting and administrative requirements.’

LLPs are subject to greater financial disclosure than partnerships, as they have to file more detailed accounts – a factor which ‘is likely to accelerate provision for many liabilities’ traditionally kept off balance sheets,’ said PKF.

Senior tax partner Kenneth Crofton-Martin said: ‘The accounting, legal and filing requirements for LLPs are very similar to companies.’

‘For larger partnerships it is arguable that conversion to a company will be more effective and attractive in the long-run,’he added. ‘The cost and management time involved in conversion to an LLP may be disproportionately high for a small partnership.’

PKF also questioned the extent to which a member’s liability is really limited. It says partners in smaller firms could be asked for personal guarantees by lenders and landlords, which would place them in the same position as if they were partners.

This could affect people whose partnerships find themselves in financial difficulties. Corporate recovery partner John Alexander said: ‘Creditors of LLPs will be aware of opportunities to claim personally from individual members of an LLP, whilst individual members should be wary of the fact that benefits they’ve had in the last two years may be clawed back if they are found guilty of wrongful trading.’

Although he says this rarely happens, partners of smaller LLPs may have to guarantee liabilities personally.

The firm says the uptake of LLPs has not been high since they were legalised in April.

A recent survey carried out by accountancy support company SWAT says that 90% of high street partnerships are not planning on becoming LLPs, while Ernst & Young is the only one of the Big Five firms to take up LLP status.

Links

Accounting rules for LLPs released

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