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Comments from ACCA
January 2008

ACCA is pleased to comment on the consultative document on the above matter, and on the draft regulations subsequently issued on the same matter. ACCA is a professional body representing over 100,000 qualified accountants and is a Recognised Supervisory Body under the Companies Act 2006. Many of our members in practice will, accordingly, will be members of LLPs and/or will be providing professional services to them.

General comments

ACCA strongly supported the concept of the LLP when the idea of legislating for it was first discussed in the UK in the late 1990s. The particular format that has been adopted in the UK is, we believe, a reasonable compromise between considerations of internal flexibility and external obligation. We did, however, argue at the time that the most appropriate option as regards the structure of the LLP legislation would be to enact dedicated, free-standing legislation for the LLP, rather than to adopt the approach that was finally chosen, viz to extend specified provisions of company, insolvency and partnership law to the new type of entity. We considered that our preferred approach would have been more in keeping with the intention to give the LLP a distinctive legal character, and would have been more convenient for all those seeking to understand the law as it applies to LLPs. The amendments now being contemplated as the result of the enactment of the Companies Act 2006 could, in our view, have been dealt with in a more straightforward way if the free-standing statute model had been adopted.

The above remarks notwithstanding, we consider that the approach set out in the consultative document for transposing relevant elements of the new Companies Act to LLPs is sensible and consistent with the approach already adopted and with which practitioners and businesses are by now familiar.

We set out below our comments on individual questions posed in the document.

Q1 Do you have any comments on the proposed approach of applying to LLPs provisions of the 2006 Act which correspond to 1985 Act provisions already applied to LLPs?

We agree that those company law provisions which are already applied to LLPs should be updated by the revised provisions of the 2006 Act. To decide now to no longer apply specific provisions which have hitherto been applied to LLPs would be likely to cause confusion. But new company law provisions which are inappropriate for the particular character of the LLP should not be applied, and the principle that individual LLPs should be left free to organise their internal affairs should be respected as far as possible.

Q6 Do you agree with the Government's proposals relating to members' residential addresses?

We agree that the same criteria which apply to the disclosure of company directors' names should apply to LLP members. Accordingly we support the proposals on this matter.

Q7 Do you have any comments on the proposals for application of Part 15 (accounts) to LLPs?

We agree that the Companies Act rules relating to private companies should apply to LLPs in much the same way. We have reservations, though, about the idea of extending the entitlement to circulate a summary financial statement to LLPs. Until the recent reform of company law, the option to circulate such a statement was available only to public companies, and for this reason it would not have been considered appropriate to extend the provision to LLPs. While the Companies Act 2006 extends it as an option to all companies, we do not think it likely that there will be any significant take-up among private companies.

The main argument against extending the summary statement to LLPs is that the statement was always designed to fulfil a very precise purpose, namely to present annual financial information in a very concise format to those small shareholders who had no inclination to read the full accounts (and in the process enable public companies to save large amounts of money in reduced printing and postage costs). Even the largest UK LLPs do not have the huge numbers of members that many public companies have, and for this reason there is no prospect for them of achieving any material reductions in printing and postage costs. From the legal perspective, given that LLP members have management rights and duties, making the summary financial statement available to LLPs would risk giving the erroneous impression that LLP members were entitled to take only the limited interest in the financial accountability of their firm that many small shareholders do. While we accept that, in practice, few LLPs would be likely to produce a summary statement, we think it more appropriate to disapply it altogether.

Q8 Do you have any comments on the timetable for the implementation of Part 15?

It would have been preferable to activate the new accounting provisions for LLPs at the same time that they come into effect for companies. As it is, the rules will apply to company financial years beginning in April 2008 and to LLP financial years beginning in October. But we do not see any problem with the application of the new provisions on filing dates and penalties for late filing as from April.

Q9 Do you have any comments on the Government's proposals on the application of Part 16 (auditors) to LLPs?

In keeping with the policy of extending to LLPs only those Companies Act provisions which apply to private (as opposed to public) companies, BERR is not proposing to extend the provisions relating to cessation of office in respect of 'major audits'. Given the material size and character of many LLPs, we suggest it is worth considering whether the biggest LLPs should fall within the category of 'major audits' and thus trigger the same reporting duties as will be imposed on auditors of listed companies.

Q15 Do you have views on the application of the 'communication provisions' of the 2006 Act to LLPs?

As a matter of principle we believe that LLPs should remain substantially free to regulate their own internal affairs, including the methods by which the firm and its members communicate with each other. That said, we do not think there would be any harm in extending the e-communication provisions to LLPs. These are after all only permissive and individual members will still be able to make a final choice as to which method of communication should be used for sending information to them.

Q17 Do you agree that the general duties of company directors in the Companies Act 2006 should not be applied to LLPs?

Yes. While we see scope for more clarity to be introduced as regards the respective responsibilities of ordinary members and designated members, the positions of director and member are not directly comparable and the statement of general duties is not capable of direct application to LLPs.

Q18 Do you agree that a statutory scheme allowing members to pursue a claim on behalf of the LLP is not required?

The new derivative claim procedure in company law is, in our view, inappropriate for LLPs. Apart from the fact that it is linked expressly to the new statement of general duties for directors, the procedure is intended to address the situation where shareholders feel they are being materially disadvantaged by the actions of the company's management. The members of an LLP, who will invariably have the right to be involved in the firm's management, are not likely to be in that same situation. As the document points out, even those members who do not enjoy management rights may still be able to seek legal redress under existing powers.

Q19 Do you agree that the provisions on narrative reporting for companies should not be extended to LLPs?

We agree for three reasons. Firstly, LLPs are not currently required to produce a directors' report, within which the Business Review disclosures for companies must be made. To require LLPs to make those same disclosures would therefore be to present them outside the context in which companies would make them. Secondly, the Business Review disclosures in the Companies Act are expressly intended to explain to non-director shareholders how the directors have complied with their statutory responsibilities as directors. If LLP members do not have the same responsibilities as directors, this core purpose of the Business Review could not be achieved. Thirdly, and most substantially, the Business Review must explain to non-director shareholders how the directors have set about promoting the company's success. Since, in the case of an LLP, there is at least a presumption that all members will be involved in the firm's management anyway, the making of such disclosures would provide members with no information that they were not already aware of. Therefore, there is no member information purpose to be fulfilled in requiring LLPs to disclose the sort of matters addressed by the Business Review.

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