Corporate Member of LLPs to be Prohibited?

The Department for Business Innovation & Skills has released a Government response paper on ‘enhancing the transparency of UK company ownership and increasing trust in UK business’.

Within the paper they have stated the following in paragraph 169:

‘We have therefore decided to pursue a default prohibition of corporate directors, whilst additionally providing for limited exemptions to that prohibition. Most companies will not be able to appoint a corporate director. But a company will be able to continue to use or to appoint a new corporate director if it is within scope of the exemptions. We can see a case for consistency and the inclusion of LLPs in this system, alongside companies’

LLPs do not have directors, rather they have members of the LLP.  In the past and as the law currently stands, it is perfectly reasonable to have a corporate member of an LLP, as part of the underlying LLP agreement.  However, the statement in paragraph 169 implies that the Government intents to prohibit such members in the future.

This would have a significant impact on many existing LLP arrangements where the cost of unwinding such a structure could be substantial. There are many professional service firms such as lawyers and accountants who subscribe to the LLP model, often with corporate members and have done so for legitimate commercial reasons. These arrangements may now fall foul of any proposed change.

There is hope! The Government had stated that they intend to offer exemptions on the following basis:

‘… to situations where the use of corporate directors provides particular business benefits, where that coincides with areas of low risk of financial crime, high standards of corporate governance or high levels of disclosure or regulatory oversight.’

We await to see how this develops!