Firms face tax hitch in registering LLPs

The increasing number of law firms registering as limited liability partnerships (LLPs) before making the decision whether to convert could face major tax consequences, it emerged this week.In the seven months since the regime came into force, 42 English firms have registered as LLPs, but most with the intention of protecting their names; they are continuing to trade as regular partnerships.

City firm Kemp Little was the first to convert formally to an LLP.High-profile firms such as Masons, Olswang, Reynolds Porter Chamberlain, Penningtons, Davenport Lyons, Bircham Dyson Bell, and Midlands firm Nelsons are among those to have registered.Partnership expert Richard Linsell, a partner at City firm Rowe & Maw, said any delay in action could prove costly.

'It states under section 12(1) of the LLP Act 2000 that exemption on paying the stamp duty when transferring from a partnership to an LLP is limited to 12 months from the date of incorporation,' he said.

'Thus, my advice would be not to form an LLP until you are ready to use it.'Brian Massey, partnership director at Davenport Lyons, said he was not aware of this provision, 'but I hope someone in the corporate department is'.Name protection is becoming more of an issue as so-called cybersquatters - who register firms' and companies' domain names and then try to sell them back to the rightful owner - are starting to show an interest in LLPs.Mr Linsell advised: 'If a firm wishes to protect its name, it should register it as a private limited company - as they cannot have the same names as LLPs.'Information provided by registration agents Jordans found that 44 of the 877 organisations to have registered as LLPs at Companies House so far were law firms, including two Scottish practices.

Richard Turnor, Allen & Overy partnership law partner and chairman of the Association of Partnership Practitioners, said he expected this number to increase.'Firms would have had to work extremely quickly to get themselves registered by now,' he said.

'I'd imagine it would take a large firm a year to prepare themselves to become an LLP, so I would expect a lot more registrations around April or May next year.'He continued: 'It is the easiest thing in the world for small firms, or those just starting up, to register, but it can be a very complex matter for the large firms.

I would be surprised if more than 25% of law firms end up making the transition.'Both Mr Linsell and Mr Turnor cited the delay in finalising the statement of recommended practice for LLPs as a major factor in firms postponing registration.

The latest consultation period for the statement - which will set out the accounting policies a firm must adopt as an LLP - is expected to finish this week, but Mr Linsell said he did not think it would be a finished document 'until spring next year'.Olswang's senior partner, Mark Devereux, said the firm would be 'considering the pros and cons of switching to an LLP over the next few months', while Nelsons' managing partner, Tim Hastings, said consideration of the issue was 'not terribly developed at this time'.