A company that is a member of an LLP accounts for that membership by asking the same questions as for a shareholding: does it control the LLP, share control with others, or have significant influence? The answer makes the LLP a subsidiary, a joint venture, an associate or a simple investment, and FRS 102 applies the normal rules for each. For tax, a trading LLP is transparent, so the company is taxed on its share of the LLP’s profits whatever the accounts show.
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Why is an LLP interest harder to classify than a shareholding?
An LLP is a body corporate with legal personality separate from its members, under section 1(2) of the Limited Liability Partnerships Act 2000. It has no shares and usually no general meetings, so the usual shortcuts (percentage of shares, votes at a general meeting) do not work. The members’ agreement is the evidence. Read it for:
- who can change the agreement and admit or expel members;
- who sits on any management board and how it decides;
- which decisions need unanimity;
- how profits and losses are shared, and whether profit is allocated automatically or only when the members decide;
- whether capital is repayable when a member leaves.
Company law translates its share based language for undertakings like this. Section 1161(2) of the Companies Act 2006 says references to shares in an undertaking with capital but no share capital are to rights to share in its capital, and in an undertaking without capital are to interests conferring a right to share in profits or a liability to contribute to losses. Schedule 7 paragraph 2(2) says that where an undertaking does not take decisions by voting at general meetings, a majority of voting rights means the right under its constitution to direct its overall policy or alter the terms of its constitution.
When is the LLP a subsidiary?
FRS 102 paragraph 9.4 defines a subsidiary as an entity controlled by the parent, and the glossary confirms that the term includes unincorporated entities such as partnerships, so an LLP is plainly covered. Control is the power to govern financial and operating policies to obtain benefits. Paragraph 9.5 lists ways it can exist with half or less of the voting power, such as the power to appoint or remove the majority of the governing body, and paragraph 9.6A adds dominant influence and unified management. Section 1162 of the Companies Act 2006 gives the parallel legal tests.
A company that can rewrite the members’ agreement alone, or appoints most of the management board, will usually control the LLP even if its profit share is modest. A large profit share without decision making rights does not on its own give control.
A controlled LLP is consolidated line by line under paragraph 9.13. One complication is the other members’ interests. If the LLP classifies them as liabilities, they are not a non controlling interest at all; and paragraph 22.5(d) says a puttable instrument classified as equity in a subsidiary’s own accounts is a liability in the consolidated accounts. How the LLP classifies those interests is covered in members’ interests in an LLP: debt or equity.
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When is it an associate?
Paragraph 14.2 defines an associate as an entity, including an unincorporated entity such as a partnership, over which the investor has significant influence and which is neither a subsidiary nor a joint venture. Paragraph 14.3 presumes significant influence at 20% or more of the voting power and presumes against it below 20%, in each case unless the contrary is clearly demonstrated. Paragraph 14.3A lists the usual evidence: a seat on the governing body, participation in policy and distribution decisions, material transactions, interchange of managers, or provision of essential technical information.
Company law is similar. Schedule 6 paragraph 19 to SI 2008/410 defines an associated undertaking by reference to a participating interest and significant influence, presumed at 20% or more of the voting rights, and paragraph 21 requires the equity method in group accounts.
When is it a joint venture, and can it be proportionally consolidated?
Paragraph 15.2 says joint control is the contractually agreed sharing of control, existing only when strategic financial and operating decisions need the unanimous consent of the parties sharing control. Paragraph 15.8 treats a corporation, partnership or other entity set up for that purpose as a jointly controlled entity, and paragraph 15.9A requires the equity method in consolidated accounts.
LLPs are a common vehicle for joint ventures between companies, and the choice is discussed in structuring a joint venture. Proportional consolidation is not available for them. Schedule 6 paragraph 18 permits it only for a joint venture that is not a body corporate, and an LLP is a body corporate. FRS 102 in any case requires the equity method for jointly controlled entities.
What accounting follows each classification?
| Classification | Group accounts | Individual accounts of a member that is not a parent | Parent’s separate accounts |
|---|---|---|---|
| Subsidiary | Full consolidation (paragraph 9.13) | Not applicable | Cost less impairment or fair value (paragraph 9.26) |
| Associate | Equity method (paragraph 14.4A) | Cost model or fair value (paragraph 14.4) | Paragraph 9.26 |
| Jointly controlled entity | Equity method (paragraph 15.9A) | Cost model or fair value (paragraph 15.9) | Paragraph 9.26 |
| None of these | Financial asset under Section 11 or 12; paragraph 11.7(a) carves out only subsidiaries, associates and joint ventures | ||
A member that is not a parent and uses the cost model for an associate or jointly controlled entity must, under paragraphs 14.15A and 15.21A, disclose summarised financial information and the effect of equity accounting, unless it is an investing entity exempt from consolidation. Under the cost model, paragraphs 14.6 and 15.11 recognise distributions as income regardless of whether they come from profits earned before or after the interest was acquired.
How does it work in numbers?
Illustration only. Holdco Ltd contributes £200,000 of capital to Alpha LLP for a 30% profit share and one of four seats on the management board. Holdco Ltd has subsidiaries and prepares group accounts. Alpha LLP makes £400,000 of profit available for division and Holdco Ltd draws £90,000.
| Item | Equity method in group accounts | Cost model in Holdco’s own accounts |
|---|---|---|
| Opening carrying amount | £200,000 | £200,000 |
| Share of profit, 30% of £400,000 | £120,000 | Not recognised as a share |
| Amounts drawn | (£90,000) | £90,000 income if it is a distribution |
| Closing carrying amount | £230,000 | £200,000, subject to impairment |
Real LLPs are less tidy. If the members’ agreement allocates profit automatically, the LLP owes it to members as a debt, and Holdco Ltd holds a receivable for allocated but undrawn profit rather than a larger investment. The member’s accounts should mirror how the LLP’s agreement actually works, so it is worth agreeing the treatment with the LLP’s accountants each year.
How is the company taxed on its share?
Section 1273 of the Corporation Tax Act 2009 treats the activities of an LLP carrying on a trade or business with a view to profit as carried on in partnership by its members, and its property as held by them. Section 1259 computes the firm’s trading profit for a corporate partner as if a UK resident company carried on the trade, and section 1262 shares it out according to the profit sharing arrangements for the period. The LLP files a Partnership Tax Return (SA800), and the company includes its share in its own corporation tax return.
The accounting classification therefore does not drive the tax. The equity method share, the cost model income and any fair value movement are all replaced by the tax computed share. Transparency ends under section 1273(4) when a liquidator is appointed or a winding up order is made. For a wider comparison of vehicles see partnership, LLP or limited company.
What mistakes come up most often?
- Classifying by profit share alone and ignoring who can change the members’ agreement.
- Proportionally consolidating an LLP joint venture, which company law does not permit for a body corporate.
- Showing other members’ capital in a subsidiary LLP as a non controlling interest when it is a liability.
- Recording allocated profit as part of the investment when the agreement makes it a debt due to the member.
- Taxing the company on its accounting profit from the LLP instead of its share in the partnership return.
The basics of the vehicle itself are in limited liability partnerships explained.
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Related Accountapedia entries
- Who can value investment property for the accounts
- Accounting for LLP members’ remuneration
- Corporation tax for property investment companies
- Partnership, LLP or limited company
- Why LLP accounts show no tax on profits
Sources
- legislation.gov.uk: Act 2000 c. 12, section 1
- legislation.gov.uk: Act 2006 c. 46, section 1161
- legislation.gov.uk: Act 2006 c. 46, schedule 7
- legislation.gov.uk: Act 2006 c. 46, section 1162
- Financial Reporting Council: FRS 102 September 2024 tmKYWO6
- legislation.gov.uk: SI 2008/410, schedule 6
- legislation.gov.uk: Act 2009 c. 4, section 1273
- legislation.gov.uk: Act 2009 c. 4, section 1259
- legislation.gov.uk: Act 2009 c. 4, section 1262
- GOV.UK: Self assessment partnership tax return sa800
Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 24 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.