Another advantage of the new LLP Act is that partners are not liable for the act(s) of other partners, and that the Act only requires the partnership to maintain proper accounting records under section 30 and to lodge annual declaration of solvency or insolvency with the Registrar.
There is no requirement to maintain statutory records.
An interesting aspect which can be an advantage (sometimes even a disadvantage) is the fact that one partner can assign his interest in the LLP to another person not necessarily being a partner.
This provision can be used where there are only two partners and there is a deadlock in the management of the business to force out one partner since the assignee is also entitled to participate in the management of the business.
The Act also provides for electronic lodgement of documents with the Registrar. This can be quite advantageous as it saves on time and costs. In practice, the Registrar of Limited Liability Partnerships doubles up as the Registrar of Companies.
The new concept has certain disadvantages. An LLP cannot raise funds from the public, and also the fact that there is no separation of management from owners. The Act provides for a manager to run the management aspects of the LLP, while in a limited liability company there are directors who do so.
The manager of an LLP would have unlimited liability in certain instances where he/she is required to file certain documents with the Registrar.
An existing partnership can apply to convert into an LLP, and similarly, an existing private company may apply to convert into an LLP and it is anticipated many businesses are going to rethink the best way to undertake business in Kenya.
It would appear all is going to boil down to various aspects of payment of tax, taxation methods and tax evasion and manipulation.
The Income Tax Act stipulates that for a partnership, the tax payable is on the gains and profits of the partnership which includes remuneration payable to a partner and his/her share of the total income of the partnership. That being the case one can manipulate paying tax since an LLP is a form of corporate partnership and the partners are not entitled to any remuneration for acting in the business or management of the partnership.
The question which will soon surface is whether LLP’s are instruments of paying less tax, and whether a tax lacuna has been created by law.