Draft Limited Liability Partnerships Regulations 2001 Draft Limited Liability (fees) Regulations 2001

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Mr. Burnett: I, too, welcome you to the chairmanship of the Committee, Mr. Cunningham. I have had the good fortune to serve under your chairmanship on a number of occasions in the past. I shall try not to duplicate the points made by the hon. Member for Bognor Regis and Littlehampton (Mr. Gibb), many of which I agree with.

I regret that the LLP entity is not based on the partnership principle but on an ungainly mixture of company law and partnership law. During the passage of the Bill, I warned that that would give rise to confusion and conflict of law, and I still believe that that is the case. There will be considerable uncertainty and therefore discouragement to partnerships and individuals contemplating limited liability partnerships.

I would like the Minister to address a point about overseas LLPs. I understand that it is the Government's policy that overseas LLPs can trade in the United Kingdom. Will the Minister confirm that that is the case and that they are not disbarred from trading in the United Kingdom?

Personal members' liability was discussed at length during proceedings on the Limited Liability Partnerships Bill. Will the Minister confirm that there is no personal contractual liability for a member of an LLP, as distinct from the LLP itself? Will he also confirm that there will be liability in tort for a member of an LLP who is personally liable for negligence to a client or customer of an LLP, if that person has assumed personal responsibility for the advice?

A further aspect of that point is vicarious liability. If a member has personally delegated work to an employee of an LLP who is not a member, will the delegating member have vicarious personal liability? There is uncertainty in the professions and in business on that point, and we would welcome the Minister's comments.

I turn to taxation, particularly capital gains tax and rollover relief. If an asset has been rolled over into an LLP, will the Minister confirm that a charge to capital gains tax will not crystallise if it ceases to trade or if business activity ceases while the asset remains in its ownership? A number of practitioners have made that point because they are uncertain about the tax treatment of assets in such an event.

I said earlier that I did not want to repeat the points made by the hon. Member for Bognor Regis and Littlehampton; I look forward to hearing the Minister's response to them. The hon. Gentleman spoke about pre-legislative scrutiny by the Trade and Industry Committee, and consultation with outside bodies. Were there significant points of disagreement between the Select Committee, his Department, and other bodies and individuals? If there were, will the Minister explain what they were?

All sides share the common ground that the price of limited liability is full disclosure. Part II of the regulations relates to accounts and audit, and part III relates to the Companies Act 1985 and the Company Directors Disqualification Act 1986. However, I wish to refer particularly to the accounts and audit provisions. Will the Minister confirm that full disclosure will be required in the LLP's accounts of total turnover and members' profits, including their salary before the allocation of profits, irrespective of the LLP's turnover? In other words, will the accounts show the full amount taken by members from the LLP?

I also want the Minister to clarify the details, including the full amounts outstanding at the time of the accounting date of any mortgages, charges or any other formal security given by the LLP. That includes the property mortgaged and the sum outstanding.

I am brought to the matter of disclosure by the default provisions. The public should have access to full copies of any partnership agreement entered into by members of an LLP. Does the Minister agree? Those partnership agreements should be registered at Companies House—[Interruption.] I wonder if I could get the Minister's attention?

Dr. Howells: I am listening.

Mr. Burnett: If there is not a partnership agreement, but heads of agreement or memorandums evidencing agreements, should they be registered at Companies House, so that anyone who so wishes can scrutinise them?

The price to be paid for limited liability is full disclosure, and in the case of an LLP, not only the accounts but matters such as the arrangements inter se its members should be available for scrutiny.

I turn to the fees regulations. How does the Minister measure the efficiency and cost-effectiveness of Companies House? That would give some idea about the accountability of that organisation; presumably, it is accountable to Ministers. It would also give some idea as to how much control, if any, Ministers have over the prices that Companies House may charge for its services.

Finally, has the Minister's Department made any projection of the likely extent of take-up of LLP status in the business world in the next two or three years?

5.28 pm

Dr. Howells: As the hon. Member for Torridge and West Devon is in the Room at present—

Mr. Burnett: I have been present throughout.

Dr. Howells: For the record, the hon. Gentleman has been present throughout, and as he is present now, I will deal with his questions first.

I will not go into detail about the efficiency, or otherwise, of Companies House. I consider it to be a very efficient operation. I am sure that the hon. Gentleman will want to respond to that. He asked about LLPs that are based abroad. They can trade in the United Kingdom, but they must provide their name and the country where they are incorporated.

The hon. Gentleman asked me to confirm whether liability in tort for a member of an LLP who was personally liable was assumed personal liability. The answer to that is yes.

Mr. Burnett: Will the Minister give way?

Dr. Howells: I wish to make progress because time is running out.

The hon. Gentleman asked what would happen if a member of an LLP were to delegate to an employee of the LLP. A person is either a member or an employee of an LLP. If an employee of an LLP were negligent in the course of his employment, the LLP would be responsible for his actions in a similar way to companies or partnerships.

Mr. Burnett: Is the Minister saying that a member of an LLP cannot, under any circumstances, be vicariously liable in tort for any act or omission of an employee?

Dr. Howells: I can confirm that.

The hon. Member for Torridge and West Devon also asked whether LLPs should have to register a partnership agreement. Regulations 7 and 8 contain default provisions governing the rights and duties of members and cover such matters as the sharing of profits, management of the LLP and expulsion of members. They will apply only when there is no existing LLP agreement or such an agreement does not adequately deal with a particular issue.

The hon. Gentleman asked, in effect, why there was no statutory requirement for an LLP to have an agreement between its members. One main principle behind the concept of LLPs is to allow their members the freedom to arrange their internal business as they choose. Members are both the owners and managers, and it is only right for internal governance to be a matter for them. To impose statutory agreements on LLPs would be meaningless unless legislation also set out what such an agreement should contain, which would be almost impossible to define.

Mr. Burnett: I agree with the Minister; I do not question that at all. I believe in flexibility, but if LLP members sign, for want of a better expression, a partnership agreement—heads of agreement, or a memorandum of understanding—must that be registered at Companies House for public scrutiny?

Dr. Howells: No, such agreements do not have to be registered, and I hope that that helps the hon. Gentleman.

The hon. Gentleman also asked about take-up of LLPs. Our research shows that the take-up will be about 8,000 over three years, which I accept is only our best guess. He also asked about the disclosure of accounts. Turnover, the total amount taken by members, profits—not on public record because accounts are abbreviated—and the full amount of outstanding charges, which is the same as for companies, will be shown. We should remember that accounts are complicated, however.

The hon. Gentleman also asked about the measures of efficiency for Companies House. As I tried to make clear earlier, we consider Companies House to be a highly efficient operation. According to its writ, it must achieve public targets on efficiency savings of about 3 per cent. per annum. It has beaten that target over the years and, as I mentioned earlier, reduced its unit costs by more than 20 per cent. in real terms during the past four years. He also asked whether an LLP was required to register the membership agreement at Companies House. The answer is no, which I hope that he will accept. The agreement is confidential and akin to a partnership or shareholders' agreement. If I have missed any of the hon. Gentleman's questions, I will try to return to them.

Mr. Burnett rose—

Dr. Howells: I will come back to the hon. Gentleman shortly, but we are running out of time and the hon. Member for Bognor Regis and Littlehampton asked several questions. I started to add them up and I think that I got as far as 13 sets of questions, which shows that he has been doing his homework or an expert has been briefing him—

Mr. Gibb: It was my hon. Friend the Member for North Wiltshire (Mr. Gray).

Dr. Howells: I could tell that the Whip had briefed him.

Mr. Greg Pope (Hyndburn): He can do it in his sleep.

Dr. Howells: Indeed.

Mr. James Gray (North Wiltshire): The Minister will have noticed that I have not been paying as close attention to today's business as I should have been. I did not have to, because I have every confidence in my hon. Friend the Member for Bognor Regis and Littlehampton, who knows this stuff inside out.

 

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Prepared 13 March 2001