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MPUTHIA: Advantages of a Limited Liability

Partnership
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4-5 minutes

Personal Finance

Sunday, July 22, 2018 22:00

By CATHY MPUTHIA

An individual can partner with a company and form an LLP. FILE PHOTO | NMG 

About seven years ago, a new form of business association was

introduced in Kenya and that is the Limited Liability Partnership (LLP).
Prior to that, Kenya had about six types of business associations that
is, sole proprietorships, partnerships, companies, trusts, societies and
NGOs.

An LLP can be considered as a loose hybrid of some features of a

limited liability company and a partnership as it contains some
features of these forms of associations.

A partnership does not have limited liability which means in the event
of a debt or other liability arising from the partnership business, then
the individual partners are liable for that debt. What’s more, they are
liable for any liabilities accruing to the partnership arising from actions
of any other partner.

In the event a creditor desires to recover the debt against the business,
then he can attach the partners’ personal properties. A company on the
other hand has limited liability meaning that in the event a liability is
due from the company, then the 3rd party cannot recover such from the
individual shareholders or directors.

Companies and their shareholders have separate legal identity

meaning that at law, they are treated as two separate persons except in
some special circumstances where the corporate veil is lifted. A lot of
people prefer to incorporate companies due to this attractive feature
that is not accessible to other forms of business associations.

However partners in LLPs have limited liability just similar to a

company such that an LLP has a separate legal identity from that of its
partners. Therefore partners in an LLP are not personally liable for the
debt of the LLP. A further attractive feature is that an LLP has a legal
identify and is an artificial person at law.

This means it can sue, contract and even hold property. This feature is
not available to sole proprietorships or partnerships as in these forms
of business associations, property is held in the name of the business
owners. For example if a partnership decided to acquire some property
then it means that the property would be held in the names of the
individual partners. This may bring complications in the event of a
partnership fall out where several partners exit from the partnership.
Assuming that the property was held in the name of the partners as co-
owners then a partnership fall out may mean that the title deed may
have to be changed.

READ: Corporate governance tips for small business

A partnership doesn’t have perpetual succession meaning that in the

event of exits, then it may affect the existing partnership. When it
comes to an LLP there is perpetual succession meaning that property
is held perpetually in the name of the LLP partnerships changes
notwithstanding.

An additional attractive feature of an LLP is the fact that body

corporates and individuals can form it. This means an individual can
partner with a company and form an LLP.
LLPs are more advantageous than sole proprietorships and
partnerships due to the above. However they are also attractive when
compared to companies as they are easier to form and furthermore the
statutory obligations are less compared to companies.

They are also very easy to dissolve when compared to companies.

They are therefore very appropriate when it comes to transactional
deals. For example if a person wishes to enter into a one off
partnership for a specific project an LLP would be ideal. This is
perhaps why they are favoured in the world of corporate finance where
a lot of hedge funds and private equity funds are registered as LLPs.