Accounting Standards and Guidance

Statements of Recommended Practice (SORPs)

Accounting by limited liability partnerships (LLPs) 2017

THE APPLICATION OF GENERALLY ACCEPTED ACCOUNTING PRACTICE (GAAP) TO LIMITED LIABILITY PARTNERSHIPS

MEMBERS' REMUNERATION AND INTERESTS
Members' interests: presentation and disclosure
55.'Loans and other debts due to members' (balance sheet item J in the prescribed formats set out in the LLP regulations) and 'Members' other interests' (balance sheet item K in the prescribed formats in the LLP regulations) should be disclosed separately on the face of the balance sheet (SI 2008 1913/1912 schedule 1, part 1, section B). Balance sheet item J includes 'Loans and other debts due to members' and 'Members' capital' in so far as it is classified as a liability. Balance sheet item K includes 'Members' capital', 'Revaluation reserve' and 'Other reserves', in so far as they are classified as equity, which are also each required to be disclosed separately on the face of the balance sheet.
56.The prescribed formats in the LLP regulations require all amounts due to members to be presented within 'Loans and other debts due to members'. This heading will include any unpaid element of members' remuneration charged as an expense together with any unpaid allocated profits arising from a discretionary division of profits made during the year. It will also include members' capital classified as a liability.
57.Equity should not include members' capital that is classified as a liability in accordance with section 22 of FRS 102. For some LLPs, the terms of the members' agreement may result in all 'capital' subscribed by members being presented as financial liabilities. This will be the case where individual members have the right to demand repayment of such balances (for example, on retirement) and the LLP does not have the unconditional right to refuse such repayment, except where the conditions for the puttables exception are met.
57A.When members' capital is classified as a financial liability it may – depending on the terms of the members' agreement – constitute a financing arrangement and may therefore need to be discounted to present value in accordance with the requirements of paragraph 11.13 of FRS 102. However, discounting will not always be necessary as in many instances members' capital will be repayable on demand or at short notice eg, on termination of membership.
58.Whether an LLP presents its balance sheet and profit and loss account using either the prescribed formats in the LLP regulations or the adapted formats (see paragraph 26B) this SORP requires the face of the balance sheet should show the net assets attributable to members of the LLP (that is, a balance sheet total before 'Loans and other debts due to members' and 'Members' other interests'). In addition, this SORP requires 'Total members' interests', being the total of items shown as 'Loans and other debts due to members' and 'Members' other interests' less any amounts due from members in debtors, should be disclosed as a memorandum item on the face of the balance sheet.
59.A statement of the changes in equity should be presented as a primary statement (paragraph 6.3 of FRS 102) detailing the movements in 'Members' other interests' (Balance sheet item K in the prescribed formats set out in the LLP regulations).
59A.A statement of changes in equity does not need to be prepared if the LLP has no equity. Where a statement of changes in equity is not included because the LLP has no equity and is not replaced as a primary statement by a reconciliation of members' interests, a statement should be made either on the face of one of the other primary statements or in the notes to the accounts that the LLP has no equity and consequently a statement of changes in equity is not given.
59B.Paragraph 4.12 of FRS 102 requires certain disclosures relating to an entity's share capital and reserves. For entities without share capital, such as an LLP, equivalent information is required by paragraph 4.13 of FRS 102, showing changes in the period for each category of equity, and the rights, preferences and restrictions attaching to each category of equity.
60.The Large and Medium sized LLP (Accounts) regulations require additional disclosures of movements in 'Loans and other debts due to members' (SI 2008/1913 schedule 1, part 3, 47). Disclosure should include the amount brought forward from the previous year, the changes arising in the financial year and the balance carried forward at the end of the year. This SORP requires that disclosure of movements in 'Members' other interests' and 'Loans and other debts due to members' should be in the following format (although additional categories of members' interests or types of movements should be disclosed where this aids clarity or circumstances require it):

 

EQUITY

Members' Other Interests 11

DEBT

Loans and other debts due to members less any amounts due from members in debtors12

TOTAL MEMBERS' INTERESTS

Members' Capital (Classified as equity)

Revaluation Reserve

Other Reserves

Total

Members' Capital (Classified as debt)

Other amounts

Total

Total 2XX1

Amounts due to members

 

 

 

 

 

X

X

 

Amounts due from members

 

 

 

 

 

(X)

(X)

 

Balance at [start of the period]

X

X

X

X

X

X

X

X

Members' remuneration charged as an expense, including employment and retirement benefit costs

 

 

 

 

 

X

X

X

Profit/(loss) for the financial year available for discretionary division among members

 

 

X

X

 

 

 

X

Members' interests after profit/(loss) for the year

X

X

X

X

X

X

X

X

Other divisions of profits

 

 

(X)

(X)

 

X

X

-

Surplus arising on revaluation of fixed assets

 

X

 

X

 

 

 

X

Introduced by members

X

 

 

X

X

 

X

X

Repayments of capital

(X)

 

 

(X)

(X)

 

(X)

(X)

Repayments of debt (including members' capital classified as a liability)

 

 

 

 

(X)

 

(X)

(X)

Drawings

 

 

 

 

 

(X)

(X)

(X)

Other movements

X

X

X

X

X

 

X

X

Amounts due to members

 

 

 

 

X

X

X

 

Amounts due from members

 

 

 

 

 

(X)

(X)

 

Balance at [end of the period]

X

X

X

X

 

X

X

X
 
60A.The reconciliation of members' interests may be presented as a primary statement instead of a statement of changes in equity. Where this option is taken comparative amounts should be presented by way of the full table relating to the prior period.
61.Any unallocated profits should appear under 'Other reserves' in 'Members' other interests' (balance sheet item K in the prescribed formats set out in the LLP regulations) (SI 2008 1913/1912 schedule 1, part 1, section B). Where the LLP makes a loss for the financial year that is not allocated to the members, the amount should be deducted from 'Other reserves'.
62.The members of the LLP may agree to allocate to the members a sum different from the amount shown as profit or loss for the financial year available for division among members. Amounts may, for example, be retained in the business as unallocated profits.
63.This SORP requires the notes to the accounts to explain where amounts in 'Loans and other debts due to members' (other than members' capital classified as debt) would rank in relation to other creditors who are unsecured in the event of a winding up. The notes should disclose details of any protection afforded to other creditors in such an event which is legally enforceable and cannot be revoked solely by a decision of the members. The notes should also disclose what restrictions or limitations exist on the ability of the members to reduce the amount of 'Members' other interests' or state that there are no such restrictions.
64.The capital (whether classified as a liability or equity) of an LLP may be reduced by agreement of the members either by repayment or by the conversion of equity capital into liability capital or other debt.13 In the absence of agreement to the contrary, unsecured debt due to members will rank equally with debts due to other unsecured creditors in a winding up.
65.The Large and Medium sized LLP (Accounts) Regulations require disclosure in the notes of the amount of loans and other debts due to members falling due after more than one year (SI 2008/1913 schedule 1, part 3, 47).
66.The LLP Regulations require separate disclosure of the aggregate amount of money advanced by members by way of loan, the aggregate amount of money owed to members in respect of profits and any other amounts (SI 2008/1912/1913 schedule 1, part 1, section B (notes)).
67.This SORP requires the amount of debts owing to the LLP by members to be disclosed.
68.Amounts owing to and from members should not be offset in the financial statements unless specifically required or permitted by FRS 102. Debits on members' balances (where, for example, drawings were made during the year in anticipation of profits) should be reviewed for recoverability and shown separately in debtors.
11 Balance sheet item K.
12 Balance sheet item J less any amounts due from members in debtors. 'Loans and other debts due to members' would include any members' capital classified as a liability. The analysis of amounts due to members is required in order to comply with the LLP Regulations.
13 Neither CA 2006 nor the LLP Regulations contain any provisions in relation to capital maintenance of an LLP, such as those in CA 2006 for limited liability companies.
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