Limited Liability Partnerships

Mr. Mitchell: To ask the Secretary of State for Trade and Industry what restrictions he proposes
to place on limited companies re-incorporating as limited liability partnerships. [125427]

Dr. Howells: Part II of the Companies Act 1985 provides a mechanism by which a company may
alter its status by way of re-registration. There is no similar provision in the Limited Liability
Partnerships Bill.

If, therefore, the members of a limited company decide that they wish to cease to trade through
their current vehicle--the limited company--and to commence trading through a limited liability
partnership, they will have to go through a three stage process. First, they will have to set up the
limited liability partnership complying with the conditions set out in the LLP Bill and regulations.
Second, they will have to transfer the assets and liabilities of the company to the LLP. This may
give rise to transaction and taxation charges; the LLP Bill and regulations do not provide any tax
exemptions for such a transfer, nor do they facilitate the transfer in any other way, e.g. by
providing for an automatic transfer of assets. Finally, the members of the company would either
have to keep the company in being in parallel to the LLP, and so continue to comply with the
regulatory requirements set out in the Companies Act 1985, or they would need to seek to wind
up the company by a members' voluntary winding up.

Mr. Mitchell: To ask the Secretary of State for Trade and Industry what estimates he has made
of the number of public and private limited companies likely to re-incorporate as limited liability
partnerships as a result of the provisions of the Limited Liability Partnerships Bill [Lords]; and
what consultations he has had with the Treasury about the tax revenue consequences of such
changes. [125429]

Dr. Howells: No estimates have been made. I would refer my hon. Friend to replies to two of his
earlier written questions. The first is my reply on 9 June 2000, Official Report, column 385W to
his question asking what estimate had been made of the number of plcs likely to register as limited
liability partnerships which gave the reasons why we would be surprised if plcs converted to
LLPs. The second is the reply made by my hon. Friend the Paymaster General on 5 June 2000,
Official Report, column 77W, to the question asking the Chancellor of the Exchequer what
consultations he has had with the DTI on this subject. My hon. Friend the Paymaster General
confirmed that officials at the DTI have been in close contact with Inland Revenue officials, and
went on to note that because of the possibility that some LLPs might be set up solely because of
their taxation of LLPs. Depending on what this work finds, consideration will be given to bringing
forward further tax legislation in due course.