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Dawn of the Open Corporate

by ChrisCook Mon May 7th, 2007 at 07:09:16 AM EST

This Diary is hatched in the ET nest of neo-Anarchists and developed from Migeru's observation that the principle that underpins all strains of Anarchism is "non-coercion".

(ie., we neo-Anarchists will just NOT be told!)

This in turn led to discussion of consensual/ two way "contrats de societe" legal protocols and imposed, one way "contrats de mandat" legal protocols.

For those unaware of this, I believe that the UK Limited Liability Partnership ("LLP") inadvertently enables an optimal - non-coercive - "Open" Corporate enterprise model to come into existence.

It's actually quite a story, and probably worth a book. (more below)

From the diaries ~ whataboutbob


This: http://visar.csustan.edu/aaba/jersey1.htm

is very informative about the way the Jersey LLP legislation was "bought" in the mid 90's by the accountancy profession.

As is Prem Sikka's paper:

http://www.essex.ac.uk/AFM/Research/working_papers/WP04-01.pdf

John Christensen, now of the Tax Justice network, told me a couple of years ago that he resigned as Economic Adviser to the States of Jersey over the legislation.

The fact that it was "conceived in iniquity and born in sin" is maybe an irony of cosmic proportions.

The background re the French jurisprudential origins is here

http://www.jerseylegalinfo.je/publications/jerseylawreview/feb98/limited_liability_partnerships.aspx

Note firstly that

 The Limited Liability Partnerships (Jersey) Law 1997 ("the Law") creates a new type of legal entity in Jersey: a partnership that is a separate legal person distinct from the partners of whom it is composed

But crucially.

but which is not a body corporate

The UK LLP, on the other hand IS a "Body Corporate".  It had to be, because in England & Wales - unusually - a Partnership has no separate legal existence. So the first thing that the UK Act says, essentially, is that, despite the name "this is a Corporate, not a Partnership".

ie it is "the Corporate that Dare not Speak its Name"

The article then goes on to consider whether or not the Jersey LLP is legally a partnership.

In this context the paper refers to French "contrats de societe".

A consideration of contrats de société in this context is nevertheless valuable. The consonance of partnerships and contrats de société has been acknowledged in statute law in Jersey.

and gets to the nitty gritty, here

"Partnership is the relation which subsists between persons carrying on a business in common with a view of profit" .

Pothier defines a contrat de société as follows:

"Le Contrat de Société est un contract, par lequel deux ou plusieurs personnes mettent ou s'obligent de mettre en commun quelque chose, pour faire en commun un profit honnête, dont ils s'obligent réciproquement de se rendre compte".

Pothier sets out four characteristics that are essential to a contrat de société:

(i) that each of the parties brings or obliges itself to bring something to the arrangement;

(ii) that the arrangement is established for the common benefit of each of the parties;

(iii) that the parties propose, by the arrangement, to make a gain or profit in which each of the contracting parties can hope to have a share by virtue of what it has brought to the arrangement; and

(iv) that the business which is the object of the arrangement and for which the contracting parties entered into the arrangement should be something lawful and that the profit which they propose to withdraw should be an honest profit.

It will be seen that a [Jersey] limited liability partnership, satisfying the requirements for registration under the Law, exhibits all of the characteristics essential to a contrat de société

So the conclusion was that the Jersey LLP is a Partnership.

But a Partnership with Limited Liability.

The UK LLP on the other hand is a Corporate, not a Partnership - and does NOT have the individual "several" responsibility of one partner acting as an agent for another.

That is the crucial point which makes the UK LLP a unique synthesis of the collective and the individual.  

The first ever "Open" Corporate, and as we see above, a participative and consensual beastie in its partnership/ contrat de societe origins.

The fact that we may agree with our fellows a collective responsibility but WITHOUT necessarily taking an individual responsibility is both revolutionary and evolutionary.

Anarcho-Capitalism is here!

Display:
thanks for this.

i am very much gung-ho for the Open Corporate.

but rather than call it "anarchic", maybe "virtually anarchic" would be more accurate, no?

the "UK" in "UK LLP" makes patent the fact that for all the "anarchic" principles that this legal form may enable, its existence ultimately relies on the political (and coercive) power of the British state.  (e.g. presumably, if someone grievously violates the terms of a UK LLP, the members of that corporation will have recourse to the  British law enforcement system to have the violator caught, judged and punished, right?)

or, to use an analogy, the "UK LLP" software may be architected "anarchically", but the operating system -- i.e. the British state and legal system -- is not anarchic.  (open source software running on Windows?)

Truth unfolds in time through a communal process.

by marco on Sun May 6th, 2007 at 08:53:24 AM EST
My point is that the widespread use of "Open Corporates" is entirely independent of "the State".

And it is that use that constitutes my "Direct Action" rather than attempting to FIGHT anyone.

It is the State (Them")that "imposes" "contrats de mandat" on "Us" - whether made by Statute (ie "Law") or by Judges ("Equity" - beloved by lawyers, based upon esoteric "trust" concepts).

Open Corporates simply bypass jurisdictions altogether.

But note that the UK does not actually HAVE a constitution. It has a collection of Statutes, and a mass of case law and precedents, but no Constitution.

It's about time it did.

But I see such a "Consitution" as a network of "Community Partnership" agrements evolving as individuals link together to carry out:

(a) those functions currently carried on by the "Private" Sector - because "Capital Partnerships" will undercut them through the "Cooperative Advantage" of not paying returns to "rentiers";

(b) those functions currently carried on by the "State" either centrally or locally.

The outcome would be a participative State, in which I am a Member, with a COLLECTIVE responsibility but have no INDIVIDUAL responsibility for my fellow man, except insofar as I agree...

Anarchism hasn't got the best of images, and I have looked in vain for a word that describes an "archism" I agree with. I liked the sound of "Synarchism" until I realised what people who call themselves "Synarchists" have been up to over the years.

Maybe Neo-anarchism?

Finally, re the open source windows analogy - a good one - I am advocating, in the context of

www.kendra.org

a middle ground for Intellectual property - "Commonsource".

ie the IP in Trust and the relationships between Creators, Users and Managers encapsulated within an LLP framework.

Neither Open nor Closed, but BOTH.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Sun May 6th, 2007 at 09:23:18 AM EST
[ Parent ]
Above, bruno-ken observes that the state has a role in enforcing UK LLP (and other) contractual relationships, and suggests an analogy in which the state is like an operating system on which the UK LLPs run. I think that this observation is correct, and I like the analogy.

To make another analogy, physics teaches us that a medium based on one set of physical laws can be the basis for another, virtual medium containing (quasi-)particles that are best described in terms of a different, emergent set of physical laws. (For example, think of the position, charge, and momentum of 'holes' in a semiconductor.) To complete the analogy, your 'anarchy' would be a system that is emergent from the laws of the underlying state.

If you think that this perspective makes sense, is there a way to align your description and labels with it, in order to avoid the objection that your 'anarchy' isn't one? (Also, I think that 'anarchy' is a bad marketing term in a public context, despite its value in making contact with a diverse body of political theory in the context of an analytical discussion.)

Words and ideas I offer here may be used freely and without attribution.

by technopolitical on Sun May 6th, 2007 at 05:56:48 PM EST
[ Parent ]
Er... quasiparticles are observable and the fundamental ones are not, within the medium, in ordinary circumstances. Consider the fractional quantum Hall effect.

Bush is a symptom, not the disease.
by Migeru (migeru at eurotrib dot com) on Sun May 6th, 2007 at 06:01:12 PM EST
[ Parent ]
Hmmm... LLC activities are observable to participants, while law-enforcers ready to throw you in prison are not, provided one stays within the LLC medium.
-------------

Speaking of emergence, what do you think of string condensates? There's some crazy 'category' thing -- tensor categories -- mentioned in connection with them.

Words and ideas I offer here may be used freely and without attribution.

by technopolitical on Mon May 7th, 2007 at 03:17:01 AM EST
[ Parent ]
Don't lets terminology scare you. The category of Hilbert spaces is the prime example of "tensor category".
Starting with Reshetikhin and Turaev, people have figured out how to use braided monoidal categories to construct topological quantum field theories in 3-dimensional spacetime. But they can't do it starting from any old braided monoidal category, because quantum field theory has a lot to do with Hilbert spaces. So usually they start from a special sort called a "modular tensor category". This is a kind of hybrid of a braided monoidal category and a Hilbert space.


Bush is a symptom, not the disease.
by Migeru (migeru at eurotrib dot com) on Mon May 7th, 2007 at 03:24:22 AM EST
[ Parent ]
If you think about what an "Operating System" actually is then it is no surprise that an analogy is seen.

The legal protocols that constitutes a "State" and the "code" that makes up an Operating System differ only in what they govern, and the "language" they use.

In fact I believe that linking consensual "Open Corporates" together into a network of networks is capable of transcending the divide between Jacobin "States" and the Sovereign Individuals they "rule".

In other words, they are capable of replacing the State, which would be achieved over a period of time as more and more functions carried out by the State and the Private Sector garvitated to Open Corporates. Eventually the State would wither on the vine.

Consider, for instance that many of the decisions formerly made by a State would no longer be necessary.

Enforcing a judgment in respect of a default or debt becomes unnecessary when risks and rewards are shared. In a "Capital Partnership" there can be no "default", because there is no Debt.

Equally, dispute procedures are built into the Open Corporate protocols / agreements so that referees and arbitration - so called collaborative law - replace adversarial law.

Now, the Physics aspect is of great interest to me. I just wish I had the intellectual tools to handle it.
The "Open Corporate" is an "emergent" phenomenon. It's not happening because Chris Cook directs it, but because Open Corporates like the LLP and LLC actually WORK. ie they address reality better.

I have had to look into Metaphysics - for which I have neither the reading nor the intellectual capacity - in order to come to some sort of rationalisation of what is going on in the twilight zone of an "Open Corporate".

See this paper

http://www.opencapital.net/papers/Valueknowledge-based.pdf

My conjecture is that "Value" is to Economics as Energy is to Physics - ie Economics may be characterised as the Physics of Value.

Capital being "Static" Value, and Money being "Dynamic" Value.

Furthermore, there are some other really entertaining analogies to be drawn between individuals and particles.

For instance, I believe that the conversion of conventional Enterprises into "Open Corporates" - through "Partnerisation" into Partnerships linking Cooperatives of Capital Users with Cooperatives of Capital providers - will create an "optimal" Enterprise model, and a one off (because irreversible)massive generation of Value.

The analogy with "Fission" is exact, but giving an explosion of Value rather than energy.

Moreover, the linking together of networks of individuals within Open Corporate protocols , and based upon shared" transaction and title registries Instead of fragmented Profit and Loss Accounts) creates the opportunity for a further explosion of Value not dissimilar to "Fusion".

Our current Society is Linear: such a networked Society would be Non-Linear.

Finally, I agree totally that referring to ourselves as "Anarchists" would be both unhelpful and inaccurate, and a better "label" is necessary.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Sun May 6th, 2007 at 08:04:46 PM EST
[ Parent ]
So if there is no government coercion, I can set up an LLP/LLC/whatever and pay no tax, and also use a private army to secure my assets?
by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon May 7th, 2007 at 08:16:12 AM EST
[ Parent ]
Just struck me: Can the legal obligations of a marriage be written in the form of a LLP and thus avoid any limitations the government might place on who can marry who?

Of course, you do not get external benefits that are for "marriage" so this might not be so interesting after all.

Btw, does UK have same-sex marriage or partnership legislation?

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Sun May 6th, 2007 at 09:30:10 AM EST
The "Open Corporate" LLP renders a great deal of Family Law redundant. Anyone can agree with anyone else the parameters of their economic relationship and interaction.

The UK does indeed have Civil Partnerships now.  But they are still Partnerships.

I know someone who went out the next day, spent his £20 and formed a husband and wife LLP the very next day after I told him of the Family LLP I'm incorporating to transcend the whole mess of divorce (and even the need for a Will).

God knows what the LLP agreement looks like. That's his business, and there is no o bligation for him to file it anywhere (although he does have to file accounts).

For family enterprises no other entity even comes close.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Sun May 6th, 2007 at 10:13:08 AM EST
[ Parent ]
Chris, this is powerful stuff. Especially the marriage deal. The mind boggles.

BTW There are plenty of major legal partnerships in the UK that have now switched to LLP. Sad to say, that is probably a good argument for how useful the LLP is.

You can't be me, I'm taken

by Sven Triloqvist on Sun May 6th, 2007 at 01:32:11 PM EST
[ Parent ]
More than 50% of lawyers are either LLP's or about to be.  Accountants and lawyers invented it FOR themselves but forgot to build in barriers to anyone else using them.

Dohhh....

Now it's too late, and all they can do is obfuscate - so er, it's really VERY complicated and not REALLY suitable, you for your Social Enterprise you should maybe try a Community Interest (= Genetically Modified)Company instead? My fees will for that are only £2000 please....

I actually had a top Charities/ Social Enterprise lawyer saying just that at a major "Social Enterprise" gig when the woman in front of me (who uses an LLP herself - got the idea from me three years' before and I hadn't seen her since) asked why the lawyer made no reference at all to LLP's as a model.

I stood up and said that if it WERE the case that they were complicated then lawyers would be queuing up to offer them.

General merriment: collapse of stout party....

Sven, LLP's are breeding like rabbits (as are LLC's in the US), because they are only £20 (£50 for same day service, no joke).

The number of UK LLP's doubled to 14,000 in the last two years. But because there is no reporting requirement, no one has ANY idea what they are doing - except the tax-man. Maybe. Eventually.

Every home should have one - and I'm only - just - joking.

See

http://www.thepropertyinvestmentmarket.com/SignUpIndex.aspx

where they set up a Company for each property. Great idea, shame about the enterprise model.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Sun May 6th, 2007 at 02:10:29 PM EST
[ Parent ]
This really is something that we should debate and promote. I will be getting back with my business consultant friends after the summer to continue with SOS, but I'll talk to them shortly and suggest they get into this.

I did talk a while back to the husband of my daughter's godmother, who just happens to be a wily old Swedish-Finnish lawyer. He knew all about LLPs. He told me that they don't exist as such under Finnish law, but he could make one for me with ease. (and a few bob probably). However as I still hold a British passport, I could 'incorporate' a test group there as an LLP - though I'd have to check the cross-border ramifications for non-British members.

You can't be me, I'm taken

by Sven Triloqvist on Sun May 6th, 2007 at 02:26:48 PM EST
[ Parent ]
Sven, it's dead simple operating across borders. Your British passport shouldn't really come into it.

That's why I was in Oslo for the last two weeks, in connection with a "Nordic Development Network" . I'll send you a note on it - Pub Rules apply.

Deal is that you simply set up a Finnish entity (up to you what and you wily lawyer what form that takes) and put the assets into it, and revenue flows through an account maintained by it as "Trustee/ Custodian".

The "Investor"; "User of Investment" and "Manager" (if any) Members of the LLP are then constituted using formal (legal entities) or informal (Club) protocols to link them together.

Since LLP's are "tax transparent" you simply have to report to your friendly local tax man what you earn through them.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Sun May 6th, 2007 at 02:35:47 PM EST
[ Parent ]
Thanks

You can't be me, I'm taken
by Sven Triloqvist on Sun May 6th, 2007 at 02:41:41 PM EST
[ Parent ]
It would help me to think about this if I had several concrete examples of how a UK LLP could be applied to solve a range of practical problems. Could you provide some descriptions of this sort or name some problems and provide links to discussions of them? (My apologies if this material is presented in a diary that I missed.)

Words and ideas I offer here may be used freely and without attribution.
by technopolitical on Sun May 6th, 2007 at 06:04:13 PM EST
I think Migeru may have the relevant ET links at his fingertips.

My web-site

www.opencapital.net

is getting a bit long in the tooth, but there's some good stuff there, and you might find some interesting material here.

http://www.omidyar.net/group/opencapital/


"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Sun May 6th, 2007 at 08:08:47 PM EST
[ Parent ]
For anyone who wishes to see the act of parliament, click here

Chris, I had a read through and I have further questions.

2) The incorporation document must-

  (a) be in a form approved by the registrar (or as near to such a form as circumstances allow),
  (b) state the name of the limited liability partnership,
  (c) state whether the registered office of the limited liability partnership is to be situated in England and Wales, in Wales or in Scotland,
  (d) state the address of that registered office,
  (e) state the name and address of each of the persons who are to be members of the limited liability partnership on incorporation, and
  (f) either specify which of those persons are to be designated members or state that every person who from time to time is a member of the limited liability partnership is a designated member.

With regard to a marriage LLP, how do you state the office.  Is it your property?  Also, I read that an LLP must have a sign on the wall of the LLP headquarters (=office?) with the LLP's name.  Again, how does that work out?  Have I read the law wrong?

Also, if I've understood the law (probably not), you have to present annual accounts to Companies House, accounts which are, in principle, viewable by members of the public (maybe they have to declare a specific interest first?)  Does this mean the Mr. & Mrs. in a marriage LLP have to present their household incomings and outgoings once a year?

And, pace ThatBritGuy, what happens if/when the law is revised/repealed?  The LLP can't survive independent of the laws of a nation state...?

Don't fight forces, use them R. Buckminster Fuller.

by rg (leopold dot lepster at google mail dot com) on Mon May 7th, 2007 at 09:28:00 AM EST
Plenty of options re a "Family" LLP. My rates are very reasonable, as are the solicitors I work with... ;-)

Probably a good idea to have a "Trustee" member (dispenses with the need for an executor in a Will as well, potentially...) - could be family member, could be a solicitor - who is there in case you both go under a bus together etc, also possible first line "referee" for disputes (not unheard of in marriages).

Technically you would need a little brass plate by the " Registered office" address, but that could be your solicitor's address (or your mother in law!)

Annual accounts for "small" LLP's are trivial - very little detail, and it's up to you whether you route income through it or just use it as a "holding" vehicle for agreed joint assets, in which case there's even less to do.

Laws do change of course, but it's not easy to change this one now, and of course for those so inclined there's the Jersey one that forced the UK to legislate in the first place, the Dubai one, the Qatar one, the Japanese one, shortly an Indian one, and in any case the US LLC would work just as well.

So it ain't going anywhere....

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Mon May 7th, 2007 at 09:42:56 AM EST
[ Parent ]
This, to me, seems to solve only the material issues revolving around inheritance and divorce and addresses none of the additional rights and responsibilities associated to marriage (e.g., living wills, right to make medical decisions, parental responsibility, etc, etc).

Bush is a symptom, not the disease.
by Migeru (migeru at eurotrib dot com) on Mon May 7th, 2007 at 09:46:27 AM EST
[ Parent ]
True: but it's not a bad start when you consider how much financial, emotional and other damage is caused by our current adversarial legal mechanisms.

"The future is already here -- it's just not very evenly distributed" William Gibson
by ChrisCook (cojockathotmaildotcom) on Mon May 7th, 2007 at 09:50:51 AM EST
[ Parent ]
Well, if the UK adopted no-fault divorces there might be less of a need for Family LLPs.

What I'm trying to say is that the Family LLP is a solution to the problems facing families with substantial assets. "Ordinary people" don't have these problems, nor can they afford the divorce lawyers that often "cause" the problems.

Bush is a symptom, not the disease.

by Migeru (migeru at eurotrib dot com) on Mon May 7th, 2007 at 03:10:44 PM EST
[ Parent ]
But virtually every house owner in London now has a "substantial asset". And many of these (particularly pensioners), haven't got a pot to piss in as far as income goes.

So public housing is being brought up to "Decent Homes" standards (New Labour has been given little credit for grasping this nettle) while private homes go to rack and ruin.

Newham is a particular example of this phenomenon: asset-rich but cash poor pensioners living in cold, degenerating housing that was built to crap standards in the first place, and yet which is "worth" £200k plus. Actually, it's the land that's worth the money, not the building.

LLP's are not perfect, far from it. But it's the concept of the "Open Corporate" of which the LLP is an embryonic example that interests me as a policy tool, and, potentially, the DNA for a new Society.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Mon May 7th, 2007 at 03:27:06 PM EST
[ Parent ]
As far as I'm concerned, what people's first home is "worth" should be measured in terms of what other home they could buy with the proceeds of a sale, and since the high "value" is the result of an inflated market, the houses are not "worth" more than they used to.

Bush is a symptom, not the disease.
by Migeru (migeru at eurotrib dot com) on Mon May 7th, 2007 at 03:31:19 PM EST
[ Parent ]
This is the exact argument I made to my homeowner's insurance.  They keep raising my premiums as the "worth" of the house goes up.  I argued that the land is what's going up -- the house itself would cost the same to replace whether it was here or in a bad location, so they had no basis in reality for raising the insurance premiums.  Oddly enough, they backed down and made an adjustment.

Maybe we can eventually make language a complete impediment to understanding. -Hobbes
by Izzy (izzy at eurotrib dot com) on Mon May 7th, 2007 at 03:48:16 PM EST
[ Parent ]
Well the other interesting outcome is that once land is put into trust in a "Community Land Partnership" model then it will never be sold again.

The Occupier may change, the Investor may change, and the Manager (if any) may change. But buying and selling properties becomes a thing of the past....

Interesting consequences in terms of the roles of service providers of course.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Mon May 7th, 2007 at 04:11:24 PM EST
[ Parent ]
Why can't the trust be dissolved and the property sold?

Bush is a symptom, not the disease.
by Migeru (migeru at eurotrib dot com) on Mon May 7th, 2007 at 04:23:23 PM EST
[ Parent ]
The "Trustee" or "Custodian" is there to ensure that it is not.

It would not necessarily be a "Trust" per se, although it could be.

An entity such as a "Community Interest Company" has an "asset lock" that prevents sale of "Community" assets. for instance, and there are many similar entities in other jurisdictions.

But the fundamental point is that there would be no benefit to anyone in selling it in any case because they achieve better outcomes in the LLP wrapper.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Mon May 7th, 2007 at 04:49:56 PM EST
[ Parent ]
The "Trustee" or "Custodian" is there to ensure that it is not.

Why are trusts forever?

Bush is a symptom, not the disease.

by Migeru (migeru at eurotrib dot com) on Tue May 8th, 2007 at 04:46:48 AM EST
[ Parent ]
Nothing is forever. Any legal construct can be wound up, or may lapse.

But if an entity isn't "doing" anything other than "owning" land it's unlikely that it would be wound up, particularly if the purpose of the entity is as a steward/trustee, and it is backed by a statutory "asset lock".

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Tue May 8th, 2007 at 05:20:31 AM EST
[ Parent ]
Annual accounts for "small" LLP's are trivial - very little detail, and it's up to you whether you route income through it or just use it as a "holding" vehicle for agreed joint assets, in which case there's even less to do.

Any assets not passing through the LLP wouldn't gain any of the advantages of the LLP.  SO if mortgage payments, salaries, etc... aren't passing through the LLP, they wouldn't be part of Mr & Mrs LLP?

Could you register your own property as the office of the LLP?  Would your residence then be seen as "a place of business" and...all kinds of business-y things start occuring (laws, taxes, mortgage rates, etc?)

Having a plaque outside your solicitor's office (heh!); I can imagine the wall (like those tiny houses in the Channel Islands with a hundred international company plaques outside!)...

So...an LLP needs minimum TWO members (no sole trader LLPs); and...and...any assets put into the LLP benefit from various tax breaks/allowances.

I thought there was a kind of legal protection beyond simple money transactions...or...not legal protection (though also legal protection)...

I understand limited liability now; and I understand (a bit) how this links to partnerships--the benefits of incorporation without the hassles; the benefits of partnership without the hassles; similar to a Co-Op but you're allowed to make a profit...

...could you use an LLP to pay someone to do something (sorta like a wage?), where you add a specific amount to the assets (say, £10,000) and then the other member takes out, say, £1,000 a month over a ten month period?  (Reminds me of that guy on t'other thread discussing small businesses in France...it seems the law frowns on such manipulations...)

...so I still cannae see how, once an LLP is set up...I cannae see how it works out on a day-to-day, month-to-month...yeah, I see that each LLP will have its own movements.

Don't fight forces, use them R. Buckminster Fuller.

by rg (leopold dot lepster at google mail dot com) on Mon May 7th, 2007 at 10:07:19 AM EST
[ Parent ]
To answer your questions:

  1. The LLP is a corporate entity so any assets, to benefit from limited liability, have to be owned by the LLP itself.

  2. You can certainly register your own address as the registered office of the LLP. The LLP pays no tax (see my comment below) so there is no tax implication. But annual accounts and an annual return need to be filed and you will be chased at the registered office for these.

IMPORTANT POINT - if you fail to file accounts/ annual returns the LLP will be struck off and ALL OF ITS PROPERTY WILL BE TRANSFERRED AUTOMATICALLY TO THE QUEEN - SERIOUSLY.

3. If you set up an LLP to 'pay' someone, the LLP will still have to pay income tax, national insurance etc. for that individual and there will be no saving.

On your last general point the best way of looking at an LLP is that it acts like a company, but decisions are made as if its a partnership (there is not the absolute distinction between directors and shareholders, although I argue below that in practice a similar distiction will usually arise).

The LLP owns property, enters into contracts, employs people, annual accounts and returns must be filed (see above). The members make decisions about the LLP, usually based on voting rights. In practice it will usually be run like a partnership or small company, the members will meet every so often to make big decisions.

by lemonwilmot (lemonwilmot at gmail.com) on Mon May 7th, 2007 at 10:46:59 AM EST
[ Parent ]
I would imagine that the Family LLP would serve for joint assets and joint bank accounts. Some people would put everything through these, and own everything in common. Others wouldn't.

LLP's can do anything a Company or individual can do.

And yes, the use of "Open Corporates"like an LLP would really hit the button in France, I suspect.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Mon May 7th, 2007 at 12:31:49 PM EST
[ Parent ]
Interesting analysis. The most common use for LLPs is to allow lawyers, accountants etc to avoid their liabilities. The second must common use is tax avoidance. The LLP has limited liability, like a company, but is not separately taxed - this is the essence of the UK LLP. Hence it is corporate entity without separate (or 'double') taxation - the 'members' are simply taxed on the profits of the LLP. Ultimately it means less tax is paid.

I don't understand how an LLP is more of a 'unique synthesis of the collective and the individual' than the plain old much-maligned joint stock company. The company is a collective entity, ultimately controlled democratically by individuals - the shareholders. An LLP is no more consensual than a company.

Many charities are run as 'open corporates' within a classic company format - a company limited by guarantee. For a small fee anyone can become a member and every member has an equal vote.

LLPs still have an agency problem, even if they don't have a directors, its just harder to deal with. I would suggest from experience that all collective entities find (in the end, and if they are large enough) that decision making is impossible without some kind of elected group of decision makers - i.e. a 'board'.

If decision making is truly by way of 'direct democracy' someone still has to propose the matters to be voted on and some members will be less involved than others leading to the same result. Power transfers to the elected decision makers, or the members who do more or care more. At least a company has a defined procedure for the collective to remove its agents.

There would be issues in many jurisdictions with enforcing the 'family' LLP as the LLP is essentially a contract and much of inheritance, trust, and divorce law (in the UK at least) prevails over separate contracts made between parties. Charity status is also unavailable to LLPs in the UK.

I would like to hear an example of you anticipate this would work in practice.

by lemonwilmot (lemonwilmot at gmail.com) on Mon May 7th, 2007 at 10:31:01 AM EST
Many charities are run as 'open corporates' within a classic company format - a company limited by guarantee. For a small fee anyone can become a member and every member has an equal vote.

There was an article in yesterday's New York Times, "Businesses Try to Make Money and Save the World", describing a trend the author calls "for-benefit" companies.  These are companies that are structured as conventional for profit corporations, but whose primary purpose is to accomplish what would be viewed as a traditinally "non-profit" mission:

... what some label the fourth sector -- composed of organizations driven by both social purpose and financial promise that fall somewhere between traditional companies and charities. The term "fourth sector" derives from the fact that participants are creating hybrid organizations distinct from those operating in the government, business and nonprofit sectors. But because the types of participants vary widely and much of the activity is nascent, no single name for what is occurring has gained broad use.

STILL, whatever participants call it, the fourth sector faces challenges. Current legal and tax structures draw strict lines between for-profits and nonprofits, and fiduciary obligations prevent asset managers from making investments with any aim other than maximizing profit. The social benefits that fourth-sector firms seek to unlock are not easily quantified and often take decades, not quarters, to attain.

"You run into fundamental problems in trying to grow good because neither for-profit nor nonprofit is set up to do what new entrepreneurs and others are trying to do -- namely, harness the power of private enterprise to create social benefit," said Jay Coen Gilbert, co-founder of B Lab, a start-up organization based in Philadelphia that will develop what he calls "B corporations," which engage in fourth-sector pursuits.

I would like to ask if you think the UK LLP -- assuming you meant that by "open corporate" -- might be able to offer a more suitable legal structure for such organizations.

Truth unfolds in time through a communal process.

by marco on Mon May 7th, 2007 at 11:20:20 AM EST
[ Parent ]
Indeed it would.

The result is neither "For Profit" nor "Not for Profit" but "For the Mutual Benefit of Members".

Companies became obsolete on 6th April 2001. It's that simple.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Mon May 7th, 2007 at 12:34:35 PM EST
[ Parent ]
I thought you might say something like that.  ;-)

Actually, the Open Corporate / UK LLP was the second thing I thought of when I read that article.

Truth unfolds in time through a communal process.

by marco on Mon May 7th, 2007 at 12:55:33 PM EST
[ Parent ]
Hi Lemonwilmot

Good to have more input. What you need to be aware of is that the use of the LLP I am advocating is not to replace individual corporates like Companies although an LLP is well able to do that.

Of course I agree that while shareholders in a Company AMONG THEMSELVES may well be capable of acting consensually, they are conflicted with every other stakeholder aka "costs".

An LLP used as an enterprise model connects the stakeholders consensually and therefore may replace the adversarially negotiated contractual relationships (such as leases, contracts of employment, loan agreements) with other stakeholders.

We may therefore derive a new "partnership-based" enterprise model or "legal and financial structure" which links "stakeholders" together in a new way.

The generic "Community" LLP model I advocate would not "own" anything, although its members may. Rather it serves as a framework within which rights and obligations are distributed in agreed proportions.

A "Trustee" or "custodian" member "owns" assets in a way not dissimilar to a Community Land Trust (or, come to that, the way that custodians such as Northern Trust "own" shares while the beneficial interest in the shares are traded by institutions), except that we replace a lease with an LLP agreement, and here the new UK Community Interest Company may come in handy for the "asset lock" (the only useful attribute of that entity)..

What a "Capital Partnership" LLP (or in the US, LLC)then does is enable "investors" of money, or "money's worth" to share revenues - or even production - with users of investment.

What I - and many others whose uses of LLP's I observe - are doing with LLP's bears no relation at all to the conventional uses of LLP's to which you refer in your posts (and for which the LLP was incorporated).

Charitable status is indeed not available to LLP's - but there is nothing to stop a Charity being a member of one - in the same way that a Charity can own a trading subsidiary, or enter into (adversarially negotiated) commercial contracts.

Indeed a "capital Partnership" enables a charity to raise finance in an entirely new way: neither a grant nor a loan, but a revenue or production sharing agreement with an investor member or "Capital Partner".

Allowing a "Charity" - and in fact a public body eg local government as well - to attract "investment" in a way hitherto impossible.

You are joining quite a long series of discussions and threads on this topic. I welcome your input, but would ask you to maybe have a look at (say)

http://www.opencapital.net/papers/Zakcoownership.doc

and familiarise yourself with the model I have been developing, since this will allow your valuable contributions to be even more constructive.

Just to put this into context, I was a DTI civil servant for years, followed by ten years as a City regulator, latterly as a Director of an Exchange.

It was in considering an enterprise model for natural monopolies such as global markets that the LLP first came to mind.

See the tail end of this article

http://www.exchange-handbook.co.uk/index.cfm?section=articles&action=detail&id=38754

In my opinion, the LLP changes the game entirely.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Mon May 7th, 2007 at 12:28:03 PM EST
[ Parent ]
I will take time to have a look at the sources referenced. My background is as a corporate lawyer, and I often advise on LLPs within the 'conventional' sector which is where I am coming from.

I think I understand your point a bit more fully when you say that the LLP serves as 'a framework within which rights and obligations are distributed in agreed proportions'. In that the beauty of the LLP framework is its flexibility, an LLP Agreement (the 'constitutional document') can say virtually anything about the rights, obligations and roles of the members within very wide parameters. Companies are restricted by the much more prescriptive provisions of company law. This to me is the real advantage of an LLP over a company for a community-type enterprise.

My point is really that the basic problems which company law tries to solve (actually rather elegantly for all the faults) will arise in an LLP, even a community enterprise with no assets, and need to be dealt with from the start in the constitutional document e.g. how to deal with disputes, who makes decisions, how are the decision makers controlled by the collective, transfer of 'ownership' etc.

I know from experience that trying to put everything into the document from the start is hard work, and often I imagine one will end up with something that looks very much like a company.

by lemonwilmot (lemonwilmot at gmail.com) on Mon May 7th, 2007 at 12:51:02 PM EST
[ Parent ]
Couldn't agree more.

My experience is that tensions between stakeholders are always there and agreement often cannot be reached no matter what the legal vehicle is.

ie you can't make a silk purse out of a sow's ear.

But it is also my experience that solutions can be found using LLP's that can be found using no other legal forms because LLP's permit entirely structures and new asset classes.

As an example funding a new building for a Charity to let at "affordable rents" to other charities may not be viable using a secured loan, but is viable using a quasi-Equity solution whereby a proportion of the investment (the land value) is simply not repaid, but subject to a reasonable (index-linked) "Capital Rental" consisting of a proportional "Equity Share" in the rental stream.

Such "asset-based" finance provide an alternative "exit" for providers of development finance which is IMHO revolutionary: oh, and also Islamically sound.

Using "deficit-basing" credit financing to buy assets, and then flipping them into "asset-based" financing vehicles to refinance them, is how Macquarie Bank makes all their money.

I believe that the LLP/LLC model is a "better mousetrap" - sort of a better class of unit trust (cf Canadian Income Trusts) without the management conflicts.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Mon May 7th, 2007 at 03:39:02 PM EST
[ Parent ]


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