Private Equity Club Limited Liability Partnerships (“LLPs” ) · PDF file2 Private Equity Club Limited Liability Partnerships (“LLPs” ) John Wayman Senior Partner PricewaterhouseCoopers

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Private Equity Club
Limited Liability Partnerships (LLPs )Tuesday 6th September 2005
PwCconnectedthinking*

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Private Equity Club
Limited Liability Partnerships (LLPs )John WaymanSenior PartnerPricewaterhouseCoopers LLP
PwCconnectedthinking*

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Page 3Private Equity ClubPricewaterhouseCoopers
UK Limited Liability Partnerships (LLPs)
Why use an LLP?
How do LLPs fit into the BVCA Model Structure
Ideal scenario new PE House
Less than ideal scenario conversion of existing PE House

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Why use an LLP?
Natural fit for a typical PE/VC House Culture = Partnership Business Essential = Limited Liability
No employment = No employment related securities Potentially significant income tax exposure on carried
interest avoided
Bonus saving of 12.8% NIC on salary/bonuses

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Private Equity FundsBVCA Model Structure
Partners/Principals
SLP
Holdco
ManagerCo
FSA RegGP Co
Fund(ELP)
Portfolio Companies
Investors
LP
GP
GP
ManagementFee (PPS)
AdvisorFee
LPs
Deal Fees
LPs
CarriedInterests

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Private Equity FundsBVCA Model Structure LLP Variant
Partners/Principals
SLP
GP CoFund(ELP)
Portfolio Companies
Investors
LP
GP
GP
ManagementFee (PPS)
AdvisorFee
LPs
Deal Fees
LPs
CarriedInterests
ManagerUK LLP
LLP Members(ie partners)

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LLP ConversionMigration from Manager Co to LLP
Partners/Principals
ManagerUK LLP
Holdco
Manager Co GP Co
GP Investment Management agreement Employees Fixed assets/other assets/contracts Property lease

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Partners/Principals
ManagerUK LLP
Holdco
Manager Co GP Co
GP Investment Management agreement Employees Fixed assets/other assets/contracts Property lease

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Partners/Principals
ManagerUK LLP
Holdco
Manager Co GP Co
GOODWILL??

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Partners/Principals
ManagerLLP
Holdco
Manager Co GP Co
Members
Member
Valuablegoodwill
Avoid corporation tax charge

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Partners/Principals
ManagerLLP
Holdco
Manager Co GP Co
Members
Valuablegoodwill
Avoid corporation tax charge But impact on protection from
employment related securitiesrules?
Member

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LLP ConversionImpact on Employment Related Securities Exposure
Key Issue for PE House Principals
Exposure to income tax/NIC on part of carried interest 40% tax/12.8% employer NIC
MOU Limited protection Reallocation of forfeited carry
New PE/VC House No employment = No ERS

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Private Equity FundsBVCA Model Structure LLP Variant
Partners/Principals
SLP
GP CoFund(ELP)
Portfolio Companies
Investors
LP
GP
GP
LPs
LPs
ManagerUK LLP
New PE/VC House
LLP Members

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LLP ConversionImpact of Employment Related Securities Exposure
New PE/VC Houses No employment = No ERS
Existing PE/VC Houses New joiners = no employment = no ERS Existing Executives continued ERS risk Pre LLP Funds
Reallocations of forfeited carry Post LLP funds
Connected former employer issue

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Partners/Principals
ManagerLLP
Holdco
Manager Co GP Co
Members
Member

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LLP ConversionOther Practical Aspects
Tax (Other)
Tax reporting for individual partners
Partner education Drawings v Salary Tax reserves
Registering as self employed Tax/NICs
VAT registration/VAT grouping

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Accounting
Format of LLP Accounts
Goodwill
Regulatory
FSA approval for LLP Change of Entity Fast Track for conversions 3-6 months
Capital requirement of LLP Financial Projections

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Legal
Impact on Fund Agreement Terms Change of manager entity Termination of employment of key persons
Investor consent
Detailed terms of LLP Agreement

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Table DiscussionLLP Conversion
2004 PricewaterhouseCoopers LLP. All rights reserved. PricewaterhouseCoopers refers to PricewaterhouseCoopers LLP (a limited liability partnership in the United Kingdom) or, as the context requires, other member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity. *connectedthinking is a trademark of PricewaterhouseCoopers.
PwC

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LLP ConversionDiscussion
PwC
Tax (Other)
Tax reporting for individual partnersPartner education
Drawings v Salary Tax reserves
Registering as self employed Tax/NICs
VAT registration/VAT grouping

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PwC
Accounting
Format of LLP Accounts Need to comply with LLP SORP
Goodwill Transfer to LLP

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PwC
Regulatory
FSA approval for LLP Change of Entity Fast Track for conversions 3-6 months
Capital requirement of LLP Financial Projections

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PwC
Regulatory Considerations
FSMA requires that a new firm requires a new authorisation FSA has developed a Simple Change of Entity process to
facilitate LLP conversions Effectively a cut down FSA application but subjects to
limitations of use Revised this June FSA typically take 2-3 months to consider Application fee usually 5,000

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PwC
RegulatoryLimitations on the Simple Change of Entity approach
Firm must: Carry on regulated activities of existing firm Have no outstanding regulatory obligations Risk profile of business unchanged No business scope changes Regulatory rights and obligations transfer Continuation of compliance arrangements and client asset
obligations Limited changes to the Approved Persons

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PwC
Regulatory Issues
Need to apply to transfer an

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Private Equity Club Limited Liability Partnerships (“LLPs” ) · PDF file2 Private Equity Club Limited Liability Partnerships (“LLPs” ) John Wayman Senior Partner PricewaterhouseCoopers