What is a Limited Liability Partnership (LLP)?
A limited liability partnership (LLP) is a partnership in which some or all partners (depending on the jurisdiction) have limited liabilities. It therefore can exhibit elements of partnerships and corporations. In an LLP, each partner is not responsible or liable for another partner's misconduct or negligence.
That’s the official definition of a Partnership, but to help put it a bit more in to plain English, The “limited liability” part of this structure’s name comes from the fact that it’s a separate legal entity from the partners, with a legal identity in its own right. This protects the partners’ own assets if the business is sued, unless they have been guilty of wrongdoing or given personal guarantees.
You can set up (‘incorporate’) a limited liability partnership (LLP) to run a business with 2 or more members. A member can be a person or a company, known as a ‘corporate member’.
Each member pays tax on their share of the profits, as in an ‘ordinary’ business partnership, but isn’t personally liable for any debts the business can’t pay.
Do you need to register a Limited Liability Partnership?
Simple answer – YES.
You can register your limited liability partnership (LLP) yourself by using approved software or by post, or through an agent.
You’ll be sent a certificate of incorporation once your LLP’s been registered.
Register electronically
You can use third-party software to register your LLP. What you pay will depend on the software you use.
It usually takes 24 hours for your LLP to be registered using third-party software. You can get your LLP registered the same day if you apply before 3pm and pay a higher fee.
Register by post
Download and fill in the application to register a limited liability partnership.
https://www.gov.uk/government/publications/register-a-limited-liability-partnership-ll-in01
Use an agent
You can use a formation agent to register your LLP for you.
What you pay depends on the agent.
What are LLP Members responsibilities?
You must have at least 2 ‘designated members’ at all times - they have more responsibilities (for example, keeping company accounts). You can have any number of ordinary members.
Making the LLP agreement
You should make a limited liability partnership (LLP) agreement with any other members as part of setting up your LLP. This sets out how the LLP will be run, including:
how profits are shared among members
who needs to agree decisions
members’ responsibilities
how members can join or leave the LLP
A solicitor can help you prepare an agreement or you can write your own.
Responsibilities of all members
Members must carry out their duties and meet their legal responsibilities set out in the LLP agreement.
Every member must register for Self-Assessment with HM Revenue and Customs (HMRC).
Responsibilities of designated members
Designated members have more responsibilities than ordinary members and must:
register the business for Self Assessment with HMRC - you must also register separately as an individual
appoint an auditor if needed
keep accounting records
prepare, sign and send annual accounts to Companies House
send a confirmation statement (previously annual return) to Companies House
Designated members must also:
tell Companies House about any changes (for example, to the registered name or address, or members)
act for the LLP if it’s wound up and dissolved
Designated members can be prosecuted if they don’t meet their legal obligations. The LLP can also be taken off the register.
As a Limited Liability Partnership, do we need to be concerned with VAT?
As with any other business structure, you must register for VAT if your turnover is over £85,000.
You can register voluntarily if it suits your business, for example if you sell to other VAT-registered businesses and want to reclaim the VAT.
Do I need to register a business name?
The easy answer is – YES.
Your name can’t be the same as, or too similar to, another registered company’s name.
Your name must end in ‘Limited Liability Partnership’ or ‘LLP’. You can use the Welsh equivalents if your LLP is registered in Wales.
Business names
You can’t choose a name that might be considered the ‘same as’ or ‘too like’ an existing name if it’s too similar.
‘Same as’ names
‘Same as’ names include those where the only difference to an existing name is:
certain punctuation or a special character, for example the ‘plus’ sign
a word or character that’s similar in appearance or meaning to another from the existing name
a word or character used commonly in UK company names (for example, ‘company’ or ‘co’)
If you want to apply to register a trade-mark of your own, to stop people from trading under your business name, you can do so at:
https://www.gov.uk/how-to-register-a-trade-mark/apply
Your name also cannot contain a ‘sensitive’ word or expression, or suggest a connection with government or local authorities, unless you get permission.
To use ‘Accredited’ in your company’s name, you need permission from who-ever you are claiming to have that accreditation from.
Check which words you need permission to use, and who from.
If in any doubt – “SEEK HELP”
Registered address
Your registered address is where all communications and notices may be sent, for example letters from Companies House and HM Revenue and Customs (HMRC).
It must be:
a physical address
in the same country that your LLP is registered in (for example, an LLP registered in Scotland must have a registered address in Scotland)
You can use a PO Box, but you must also include a physical address and postcode after the PO Box number.
You can use your home address - this will be publicly available.
What are the Pros and Cons of being a Limited Liability Partnership?
The Pros of Being a Limited Liability Partnership
A written agreement between the members determines the terms of the partnership and delivery of its profits. This can provide a more flexible approach when it comes to the management and running of the company.
LLP’s can appoint two companies as members opposed to a Limited company, where at least one director must be an actual person. This provides privacy to its members. Therefore the individual’s identify will not be exposed as widely or unnecessarily.
You are protecting the partnership’s company name. By registering the LLP at Companies House, you prevent another partnership or company from registering the same name.
With a Limited Partnership, a partner’s personal assets can be seized to settle the partnership’s debts. With an LLP structure, it provides protection and separation of the member’s personal assets from the liabilities of the business.
LLP’s are a separate legal entity to its members. LLP is thought to be a legal person in its own right. Through an LLP, you can buy, rent, lease, and own property. You can also employ staff, enter into contracts, and be held accountable if necessary. This avoids the problem occasionally encountered by ordinary Limited Partnerships where every partner has to sign certain documents in their own names.
LLPs do not have to be dissolved on the resignation, death or bankruptcy of a member. This means the trading can continue undisrupted during and following a difficult period.
There are tax benefits as members of an LLP are taxed as partners in a partnership and are treated as being self-employed.
The Cons of Being a Limited Liability Partnership
Similarly to a limited company, public disclosure is often considered to be the main disadvantage. Financial accounts have to be filed at Companies House for public record. The accounts regularly include the income of the members, which they may not desire to be made public.
Profit cannot be reserved in the same way as a company limited by shares. This means all earned revenue is distributed without any flexibility to hold over earnings to an upcoming tax year.
LLP must have at least two members. If one member decides to leave the partnership, the LLP cannot survive on its own, and you may have to consider dissolving.
Incorporation of an LLP is more complex and can be more costly than an ordinary partnership. The expenditures of administering the LLP are usually higher than those for an ordinary partnership due to the extra accounting and reporting requirements.