Limited Liability Partnership (LLP)

Limited Liability Partnership (LLP)

◇Areas of Utilization of Limited Liability Partnerships
◇Establishment of limited liability business association (LLP)
◇Flow of establishment procedures


If you want to start a business, i think the first thing that comes to mind is the establishment of a corporation.On the other hand, i think it’s because you can’t think of a way other than to establish a corporation, or because you’re not familiar with it.
However, since Heisei 17, we have been able to establish a completely new organization called the Limited Liability Partnership (LLP).Simply put, as an business body, it is a new form that did not exist in Japan until now.

1) Characteristics of limited liability partnerships
THE LLP WAS NEWLY ESTABLISHED AS A SPECIAL SYSTEM FOR THE CIVIL LAW UNION, WHICH CREATED AN ORGANIZATION THAT IS PARTICULARLY EASY TO USE FOR IT-RELATED, FINANCIAL, DESIGN FIRMS, INDUSTRY-ACADEMIA COLLABORATION, COLLABORATION BETWEEN VENTURE AND LARGE CORPORATIONS, AND JOINT RESEARCH AND DEVELOPMENT.To put it more clearly, “experts (engineers, etc.) and small and medium-sized enterprises with excellent technology but no money” are new forms of unions that can work in collaboration with large corporations, and are organizations that are very suitable for businesses that make use of people rather than businesses where their investment amounts are not something.

In a similar form of organization, “Llc” was newly created by the revision of the Company Law.However, the LLC has “Legal character” as the name “Joint company”, and LLP is “Union” and there is no legal character to the last though it has the same special policy as LLP such as the limited responsibility system and thorough internal autonomy.

As a field of use of joint venture (LLC), it is naturally accepted to change the organization to a corporation, so it can be said that it is a form suitable for businesses that seek profits permanently, but the Limited Liability Business Association (LLP) is suitable for businesses that utilize the capabilities of corporations and experts, and as a joint research and development business, it is suitable for businesses that have set deadlines.

2) Five major benefits of limited liability partnership (LLP)
1.Limited liability
We only assume investment stake in our business.

2Internal Autonomy Principles
The distribution of profits and losses can be determined freely by the union members regardless of the amount of investment.The provision of labor, intellectual property, and know-how can be “different from the investment ratio” in accordance with the degree of contribution.

It is free to decide the distribution of profits and the authority, etc. without being bound by the large amount of the investment.

3Member taxation
It is called a “pass-through system”, and taxes are charged directly to the investor.In other words, unions are not taxed (there is no corporate tax because they are not corporations) so-called double taxation is not.

About the member taxation
Member taxation is a system that taxes investors directly, rather than taxing them during the LLP stage.As a result, there is a great advantage that the double taxation that the profit distribution to the investor is also taxed is avoided, and there is a certain amount of profit and loss in the business of LLP, but there is also the advantage that it is possible to make other income and profit and loss totals of the union member.In this CASE, there will be no direct taxation on the LLP because it applies to member taxation, not corporate tax.
When the LLP makes a profit by business, the investor obtains the profit (distribution) and the tax is levied on the distribution of the profit of the investor.

Similarly, if a loss occurs in the LLP business, you can combine it with other income (profit and loss).This is true whether the investor is an individual or a legal entity.This does not mean that there is an unlimited (limitation) because it compresses profits, especially if the investor is a legal entity, but you can expect a tax saving effect.

4.Limited liability system
All LLP investors (union members) are limited liability.As for the scope of limited liability, the investor is only responsible for the scope of the investment.However, we have set up regulations to protect our creditors in exceptional terms.

5.Securing joint enterprise
Llp’s decision-making is made by all investors.In addition, because it is a principle that all members carry out the execution of business, because it is important to have some role, the shareholder existence such as “Only pay and ask later” is not admitted.

In Japan, there is no corporate tax for civil law unions, which are often used when joint ventures are used.Instead, it is advantageous in terms of taxes because it is a member tax, but there is a big disadvantage that all investors assume infinite responsibility if they fail in business.In the case of a corporation, etc., the liability is a limited liability, and although it is not responsible for more than the investment, the corporation tax will be carried out.From these, LLP can be said to be a new “organization” that combines the good points of “union” and “company”.

In Japan, in recent years, people and companies with assets such as advanced knowledge, technology, and know-how have come together to make effective use of these assets in the form of “joint ventures”, but in reality there has never been such an organization.
Then, having appeared was to establish the LLP system as a special system of the civil law association.By utilizing this LLP, it is not so difficult to invest in high-risk joint ventures that have been difficult for individual professionals, and it is expected that they will be highly valuable to utilize such industry-academia collaboration and research and development.

◇Areas of Utilization of Limited Liability Partnerships

1.A group of software experts
It is the case when experts in the field such as programmers, designers, sales, etc. gather to do business, such as joint development and sales.In this case, you can make the distribution flexible according to the contribution level.Moreover, because it becomes a member taxation, it will be taxed for each union member when the profit occurs, and it is able to be totaled with the income of each member member if the loss occurs.

2Making movies
In this case, it is often organized by the civil law association though “○○ production committee etc.” etc. are often made in Japan when the movie is made.However, there are points such as the difficulty of the new person joining the new person disliked the risk because it is infinitely responsible in the civil law union.In that respect, in the case of the Limited Liability Business Association (LLP), it is a limited liability, so it is easier to add new people to the film making.

3Cooperation between small and medium-sized enterprises
By establishing a limited liability business association (LLP), it is possible for mold manufacturers with advanced technology and molding manufacturers to bring together multiple people to develop their businesses.Because a corporation can become a union member, it is possible to total it with the income of the parent company even if there is a loss in the business.Moreover, when the profit occurs, it will be taxed by each parent company which is a union member.In addition, the ability to “distribute according to the degree of contribution” regardless of the ratio of investment is also a major advantage of LLP.

4.Industry-Academia Collaboration between Pharmaceutical Companies and University Professors
As an individual, i think it is difficult to make a large amount of investment.For example, when a pharmaceutical company and a professor work together in a corporation, the profit dividend is determined by the investment (e.g., 9:1) ratio, so the profit flows to the company (9), so unfortunately the individual professor cannot obtain the profit from the knowledge provided.However, since the Limited Liability Business Association (LLP) can flexibly distribute according to the degree of contribution regardless of the contribution ratio, the reverse dividendof company 9 and Professor 1 can be made possible if the company accepts the dividend.

5.Cooperation between farmers and the processing industry and distribution industry
Farmers and food processors and distributors can establish a limited liability partnership (LLP) to conduct joint ventures such as processed foods.

Establishment of Limited Liability Partnership (LLP)

1.Create a union agreement
The first step in establishing the company is to create a union agreement.All union members sign or seal the union agreement.This union agreement describes the decision as important as the Articles of Incorporation, which is made by a corporation, and describes or records the following matters:

・The business of the limited liability business association, the name of the union, the location of the office of the union, the name and name of the union member, the date of existence of the union and the duration of the union contract, the type of investment of the union member, and the business year registration of the union

It is approved by the registration to the “Legal Affairs Bureau which has jurisdiction over the main office” after all the union members are stamped on the union contract, and all members of the union have “paid for the investment”.The registration process period varies depending on the season and the Legal Affairs Bureau, but the registration is completed roughly in about 10 days.

Once the registration is complete, you can obtain the LLP’s “Registration Certificate” and open a bank account for llp, or report the opening of the business to the competent tax office.

After the establishment,
When doing business under a limited liability business association (LLP), the name “Limited Liability Business Association” must be displayed and used.In addition, you must create a profit and loss statement and balance sheet for accounting and report it to the tax office.Please think that this is necessary work because both the corporation and LLC are the same.

Flow of establishment procedures

Create a union agreement

All union members sign into the union contract (real seal)

Pay for the investment and make the benefitof the in-kind investment (transfer to the representative’s account)

Apply for registration of union contracts to the Legal Affairs Bureau (attach necessary documents such as seal certificates)

About ten days

Completion of registration

This limited liability business association (LLP) has a very wide range of use, and it is an excellent mechanism, and it can be said that it is an attractive mechanism for the establishment of a new establishment, creative cooperation, and the joint enterprise.