The Minister for Energy (Malcolm Wicks): I beg to move,

The Chairman: With this it will be convenient to consider the draft Small Limited Liability Partnerships (Accounts) Regulations 2008 and the draft Limited Liability Partnerships (Accounts and Audit) (Application of Companies Act 2006) Regulations 2008.

Malcolm Wicks: It is a pleasure to serve again under your chairmanship, Sir Nicholas. I obviously abide by your ruling on considering the instruments together, although I was looking forward to treating the Committee to three technical speeches. However, I have now combined my notes into one coherent whole, I hope. Although you have helpfully detailed the two other sets of draft regulations, which will also be made under the Limited Liability Partnerships Act 2000, I think that it will help if I begin by putting all three sets in context.

Although companies have had the benefit of limited liability for many years—indeed, for very many years, if I recall my history correctly—the concept did not exist for partnerships until the passing of the 2000 Act. The growth in size of professional firms—notably lawyers and accountants—and the consequent increase in the possible size of claims against them were driving forces behind the creation of a new form of body corporate: the limited liability partnership, which I shall refer to as the LLP. LLPs were created by the 2000 Act and its Northern Ireland equivalent in 2002.

Much of the substance of the law applying to LLPs is created by regulations that apply company law, particularly large parts of the Companies Act 1985, with appropriate modifications to LLPs. Northern Ireland follows a similar approach by applying to LLPs, by regulation, provisions of the Companies (Northern Ireland) Order 1986.

Unlike companies, LLPs do not have directors and shareholders but only members. The flexibility that they have in respect of their internal arrangements is similar to that of conventional partnerships. Since its creation seven years ago, the LLP structure has appealed to business of all sizes and sectors—indeed, most of the large accountancy and legal firms are LLPs—but the regime is also used by a large number of small firms. The number of businesses choosing to operate as partnerships continues to rise, from 1,936 in March 2002 to about 30,000 by February this year. LLPs have proved to be popular.

The Companies Act 2006 introduced important reforms and provides a modern framework for business. In the light of the changes made to company law by that Act, the Government intend to apply provisions from it, with appropriate modifications, to LLPs by regulation. That will involve a two-stage process. The draft regulations will apply the accounts and audit provisions of the 2006 Act to LLPs for financial years beginning on or after 1 October 2008. The Act’s provisions on accounts and audit came into force for companies on 6 April 2008 for financial years beginning on or after that date, and our consultees told us that they would like the equivalent provisions to be brought into force for LLPs this October.

The regulations are very technical, but, put simply, they will ensure that provisions on the accounts that LLPs must prepare are kept in line with those for companies. The regulations also set out the provisions in a clearer and more user friendly way—even more user friendly than this speech. The remaining provisions of the 2006 Act will be applied to LLPs with effect from 1 October 2009, in line with the implementation timetable for the Companies Act 2006. Later this year, we plan to publish, for comment, the final set of draft regulations.

To reach this point, we have consulted on the broad approach to applying the 2006 Act to LLPs, on the detailed policy proposals and finally on the draft regulations themselves. The vast majority of respondents to the consultations supported the approach and proposals. In addition, a working group of interested parties has worked closely with officials on the detailed drafting of the regulations. In all, around 59 different stakeholders—a terrible word—or people with an interest have commented on or been involved in the drafting of the regulations. I should like to extend my thanks to those who have contributed thus far, and I look forward to their further input on the final set of draft regulations.

The Limited Liability Partnerships Regulations 2001 apply large parts of the Companies Act 1985 to partnerships, with modifications of varying degrees. That creates a complex set of regulations that have to be read together with the 1985 Act. A similar approach is taken in Northern Ireland. The draft regulations and those that are to follow next year set out the 2006 Act provisions applied to LLPs in full, as modified to take account of the characteristics of such partnerships.

Following the principles of “think small first” and to improve the clarity of the legislation, we have drafted the regulations to ensure that LLPs reap the rewards of simpler and clearer legislation in more modern language and that they remain an attractive corporate vehicle for business. So, for example, small LLPs have their own set of regulations. In line with the extension of company law to Northern Ireland, the regulations that apply the 2006 Act to LLPs will also extend to Northern Ireland partnerships.

The accounting and reporting requirements in part 15 of the 2006 Act are substantially the same as those in the 1985 Act. Part 15 confers powers on the Secretary of State to make regulations on the detailed form and content of the accounts and reports of companies, and those regulations have already been made after debate in the House and in another place. In applying the 2006 Act accounting provisions to partnerships, a small number of changes to the accounting requirements for LLPs are necessary, and they mirror some of the changes already introduced for companies.

The draft regulations will also apply to LLPs part 16 of the 2006 Act on the audit of accounts. As with the provisions on accounts, the draft regulations will apply the rules to LLPs as they apply to private companies, with adaptation to take account of the different internal arrangements of partnerships. Some significant changes in audit provisions for companies will be applied, where appropriate, to LLPs. The draft regulations will also apply part 42 of the 2006 Act on statutory auditors to those acting as the auditors of LLPs.

In summary, the draft regulations will make a small number of substantive changes in the application of the accounts and audit provisions applied currently to LLPs by applying, with modification, some of the new provisions of the 2006 Act. They also restate the whole provision as applied in full in a stand-alone set of regulations that are more user-friendly to LLPs, particularly smaller ones and their advisers. That will enable LLPs to take advantage of many of the major benefits to businesses of modernising and simplifying company law.

The Chairman: I advise the Committee that the debate may continue, if necessary, until 6.1 pm.

Mr. Jonathan Djanogly (Huntingdon) (Con): Thank you, Sir Nicholas, for your advice, which is timely. [Interruption.] The duty Whip says that I need not necessarily follow it.

First, I declare my interest as a partner in SJ Berwin LLP, although I appreciate that these are generic statutory instruments. Each of the three statutory instruments relates to the application of the Companies Act 2006 to LLPs in the format of a stand-alone set of LLP regulations. If the draft regulations were not to come into force, LLPs would continue to operate under the Limited Liability Partnerships Regulations 2001, which are based on the Companies Act 1985, and would not therefore benefit from the provisions of the 2006 Act—specifically, the reductions in the regulatory burden.

Under the draft regulations, as the Minister said, the 2006 Act provisions will be applied to LLPs from 1 October 2009. I think that the date was originally going to be 2008. As the regulatory impact assessment says, the aim of applying the 2006 Act to LLPs is to enable them to take advantage of the major benefits to business of modernising and simplifying company law, according to the objectives that I have just described. In that way, it is hoped that LLPs will remain an attractive corporate vehicle for business, while retaining their distinctive, flexible characteristics.

We agree that this is a valid aim. To that end, three possible answers to the problems of placing LLPs on the same basis as companies following the 2006 Act were considered. Option A was to do nothing, which would mean not applying the 2006 Act to LLPs, so they would continue to operate under the existing provisions. Those provisions are largely based on the Companies Act 1985, which will be repealed in most parts for companies. If the LLP regulations were not amended, LLP law would be out of step with modern company law.

Option B would have meant amending the 2006 Act and applying the relevant provisions of that Act to LLPs with a series of general and specific modifications, without setting out the modified legislation in full. The 2001 LLP regulations currently take that form. They are already a complex set of regulations for LLPs and their advisers to interpret. Producing a further set of amending regulations would make the position for LLPs even more complex.

The option proposed is a stand-alone set of regulations restating provisions of the 2006 Act, as applied to LLPs with appropriate modifications, and two sets of accompanying accounts regulations—one set for small LLPs and another for medium-sized and large LLPs. The assumption is that the structure of the LLP regulations will make the provisions that apply to LLPs are much easier to understand. We agree that that will make the LLP legislation far more accessible for LLPs and professional advisers. It will reduce the time that it takes to cross-reference the regulations with other companies legislation and lessen the complexity of the law for LLPs.

The Committee will be pleased to hear that I do not intend to go through the draft regulations in detail, but we have consulted on them and the professions are happy with the outcome. The Joint Committee on Statutory Instruments, acting in its usual, meticulous way, came up with a couple of points on a few matters of special interest to it that are worth mentioning. The first was mentioned by the Minister. The draft regulations will extend only to the UK, reflecting the extent of the 2006 Act. The LLP provisions will be extended to Northern Ireland under section 1286(1)(a) of the 2006 Act, and that section will be commenced to the extent necessary by a separate commencement order, which, I understand, will be made before the regulations are made. Perhaps the Minister could confirm that.

The second issue concerns regulation 27, which applies to LLPs, and section 468 of the 2006 Act, which confers powers on the Secretary of State to make further provision about accounts by regulations and which is subject to the parliamentary procedure set out in section 473. That will ensure that, if relevant changes are made in the future to the accounting provisions for companies using powers in the 2006 Act subject to the negative procedure, the law on the accounts of LLPs can be kept in line with that of companies, using the same parliamentary procedure. I think that I have that right, but perhaps the Minister will confirm it. If so, all this seems very sensible and uncontentious from our point of view.

Lorely Burt (Solihull) (LD): I welcome you to the Chair, Sir Nicholas.

The draft regulations are welcome. Limited liability partnerships have proved helpful in giving the benefit of limited liability, while allowing the internal structure of companies to remain similar to that of traditional partnerships. It is clearly helpful to apply the audit provision of the Companies Act 2006, of which I am a veteran, to accounts whose years begin on or after this October.

In respect of small LLPs, there are two changes. Small LLPs can include financial instruments in the accounts at fair value in certain circumstances, and some technical amendments will help UK accounting standards to merge with international financial reporting standards. There is no argument against any of that. However, I would argue about how far the Government’s strapline, “think small first”, actually materialises outside the pages of legislation, but perhaps I will leave that for another day. Similarly, I have no argument in respect of medium-sized and large LLPs. We obviously want to support and give succour to them and to prevent them from being attracted elsewhere in the world to be incorporated.

I should like to ask two questions. We can see from the explanatory notes that the number of LLPs has grown since 2000 to about 30,000 today, but we do not know very much about them. We do not even know in more than half the cases whether they are large, medium-sized or small. Why is that? Are there not any financial reporting statistics that we could use to find out, without burdening the companies concerned with additional questions? If we do not have such information, does that mean that the Government are not communicating with the companies and offering advice and assistance to help them to thrive?

My second question is about the impact assessment. The answer to the question,

is:

That does not answer the question. I should like to ask the Minister when the policy will be reviewed.

Malcolm Wicks: This has been a mercifully short but useful discussion. I am pleased by the general support for the draft regulations.

The hon. Member for Huntingdon asked two specific questions. The answer to both is yes, but I will answer in slightly more detail. The commencement order will be made before the regulations. It will repeal the relevant provisions for Northern Ireland. I can also confirm the other point that he made about the application of the amending power in section 468. Therefore, the answer to both his questions is yes, and I welcome his support.

Limited liability partnerships are mainly accounting and legal firms, but some small companies are also involved, as I said in my opening address. The breakdown between small, medium-sized and large is based on information from Companies House. I am told that little data are available. I will take advice on whether that is a shortcoming. With all of these things, one has to get the balance right between useful information and the administrative burdens of over-regulation on partnerships. My Department also has responsibility for regulatory reform, which we take seriously. I will consider this issue, and if there is something useful to say, I will write to the hon. Member for Solihull.

The hon. Lady also asked when the 2006 Act will be reviewed. The Department is considering and consulting on detailed plans for review, which will be put into effect after the full implementation of the 2006 Act in October 2009. We are looking at the details of a review and consulting on them, but I cannot give that detail yet. However, we note her interest in this matter. With those words, I hope that the Committee will support the draft regulations.

The Chairman: That was a splendid debate, which was succinct, to the point and quick.