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What opportunities do Limited Liability Partnerships offer to Councils?

Fri 06 Jun 2008

In the context of housing development and services, LLPs give life to the Egan principles of integration for the purposes of reducing inefficiency and cost.

LLPs are generally 50/50 joint ventures between a Council and a third party and have a specific goal.  They allow sharing of risk and reward and embody a mutuality of interest between the partners, which contributes to their success.

LLPs are usually “off balance sheet” and governed by rules created by the partners so they permit more flexible borrowing, finance and management than may otherwise be possible for a Council (because they are not subject to the same statutory restrictions).

An LLP joint venture between a Council and a housing association, where the Council transfers its Direct Labour Organisation into the LLP, is an excellent example of the economies of scale available through LLP partnering.  Through the LLP, the Council would receive a service from its former DLO, whilst sharing the risk and cost of employment of the DLO with the housing association.  Unlike a joint venture limited company, the Council’s share of any profits within the LLP pass through directly to the Council, so the LLP is “tax transparent”, making for easier accounting for the joint venture participation.

The risks of a shared project can be ring fenced within an LLP, so the Council will not be at financial risk from a failed project beyond the amount invested in the LLP- “unknown unknowns” need not be part of the Council’s decision making matrix.

Author: Neil Morgan, Commercial Partner.

Appeared in Inside Housing published 6th June 2008

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