What is a Limited Liability Partnership?
A limited liability partnership (LLP) is an incorporated business entity that is legally separate from its members, who have limited liability for the LLP's debts. This type of business structure is designed for professionals who traditionally operate as a partnership, such as accountants and lawyers.
The key differences between an LLP and a limited company are:
- An LLP does not have directors, shareholders or guarantors. Instead it has members, who are more commonly referred to as 'partners'. There must be at least 2 members to register an LLP.
- LLPs are governed by the Limited Liability Partnerships Act 2000 and The Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009.
- LLPs are taxed as partnerships, meaning they are not liable for Corporation Tax but each member is personally responsible for paying Income Tax and National Insurance on their individual profit.
Who is this structure right for?
It's particularly suited for businesses where partners want to maintain control over the business's operations, and where profits can be distributed based on contribution rather than share ownership.
For that reason it's popular with professionals, for example:
- Doctors
- Lawyers
- Accountants
- Architects
Key Benefits
Limited Liability Protection:
LLPs protect partners' personal assets, limiting their liability to the amount they invest. This reduces financial risk, making it a safer option for professionals like lawyers and accountants.
Flexible Management:
LLPs allow partners to manage the business directly, with roles defined in the LLP agreement. This flexibility appeals to professionals seeking control over operations without the rigid structure of a limited company.
Tax Transparency:
Partners are taxed individually on their share of profits, often making this structure more tax-efficient than limited companies.
Features
Profit sharing:
LLP profits are shared between its members.
Corporate body:
You can appoint another company (termed as a 'corporate body') to be a member of an LLP. Any corporate members will be liable for Corporation Tax rather than Income Tax.
Suitable for non-UK residents:
LLP members can be based anywhere in the world - there is no requirement for members to be UK residents.
Continuity:
An LLP continues to exist as a separate legal entity even if partners leave or new ones join. This is important for professional practices that may need long-term stability to maintain client relationships and business continuity.
Forming a Limited Liability Partnership
1st Formations offers a LLP Package for £74.99, which is perfect for incorporating limited liability partnerships. Below are the key points about LLPs:
- LLPs must be registered with Companies House and have at least two members, with two designated members responsible for meeting legal obligations.
- They need a registered office address. This should be a full postal address (not a PO Box Number) in the same UK jurisdiction where the LLP is registered in.
- Information about People with Significant Control (PSCs) must be provided, usually the members.
- Designated members must ensure that HMRC is informed of the LLP's existence and that a Partnership Tax Return is filed each year.
- LLPs must be formed with the view to making a profit. This business structure is not suitable for non-profit organisations.
