Limited Liability Partnerships (LLPs)
A limited liability partnership or LLP is similar to a limited company in that it offers limited liability to its members and therefore protects their personal assets. There are, however, three significant differences:A limited liability partnership is taxed as a partnership and is not subject to corporation tax.
- There are no directors or shareholders in an LLP, instead it has members, and there is no limit to the number of members.
- An LLP is governed by the Limited Liability Partnerships Act 2000 and not the Companies Act of 2006.
Who would use an LLP
LLPs are becoming increasingly popular as they offer the limited liability of a company and the flexibility of a partnership. They are most commonly used by certain professions that typically form as a partnership – doctors, architects, solicitors – but whose members wish to limit their personal liability.
Key features and benefits
- Company profits are split amongst the members.
- An LLP is not subject to corporation tax, income tax or capital gains tax. Instead, the individual members are taxed on profits, and therefore an LLP is known as being ‘tax transparent’.
- Another company can be a member. In this instance, any profits will be subject to corporation tax rather than income tax.
- Members are not required to reside in the UK.
Legal requirements of an LLP
- An LLP must have a minimum of two members (partners), however, there is no upper limit to the number of members.
- It must register with the Registrar of Companies in the UK (Companies House).
- An LLP requires a UK registered office address in the same jurisdiction as incorporation. This must be a physical address where official mail can be delivered and legal notices served.
- Inland Revenue must be informed of an LLP’s existence and an annual partnership tax return is required. One member is nominated to take responsibility for these requirements.
- An LLP structure cannot be used for non-profit purposes, as it requires to be formed with the intention of making profit.
An LLP Agreement (also known as a Partnership Statement) may be drawn up detailing the management of the partnership, the share of profits, and the rights and responsibilities of each partner if they are anything other than equally divided. It is not a legal requirement to draw up an LLP Agreement, however, it is often recommended to have one.
Ezyco Formations offers a complete LLP formation package, including a free LLP Agreement if required. If you are ready to form your Limited Liability Partnership, please click on the link below.
FAQ's - Limited Liability Partnerships (LLPs)
What is a Limited Liability Partnership?
A limited liability partnership is a type of business structure with many features of a traditional partnership but it exists as a separate legal entity liable for its own debts, and offers limited personal responsibility to its members (partners).
How many people are required to form an LLP?
A minimum of two members are required to form an LLP. There is no maximum number of members for an LLP.
What are the benefits of an LLP structure?
LLPs offer a number of benefits for profit-making businesses, such as limited liability for business debts, a flexible management structure and distribution of profits, and each member pays income tax on their profits rather than corporation tax.
What is the difference between an LLP and a limited company?
LLPs are similar to limited companies because they are subject to aspects of company law and provide limited liability to their members, but they also offer the benefits of a traditional partnership, such as income tax liability rather than corporation tax, and they are more flexible in regards internal structure, distribution of profits and members’ rights. Unlike a company, an LLP does not have a memorandum or articles of association.
Who would form an LLP?
An LLP structure is used by professionals who typically set up as a partnership, such as doctors, solicitors, and accountants, but who require the protection that limited liability provides.
How is an LLP taxed?
An LLP is treated as an ordinary partnership for tax purposes. The members pay income tax on their share of profits. The partnership itself is not liable for tax. Most partners will set themselves up as self-employed and register for self-assessment income tax.
What rights and responsibilities do partners have?
LLPs offer a flexible management structure which gives members the opportunity to distribute rights, responsibilities and profits however they see fit. If any aspects of the partnership are divided unequally, it is advisable to have a Partnership Agreement in place stipulating these details.
Can another company be a partner?
Yes, a corporate body can be a partner of an LLP, but any profits it makes will be liable for corporation tax rather than income tax.
What are the annual requirements of an LLP?
An LLP is subject to the same rules as a limited company and must send an Annual Return and annual accounts to Companies House. At least two members must be named as ‘designated members’ and bear the responsibility of filing annual accounts and returns. Individual members are responsible for paying income tax on their share of company profits - the partnership itself is not liable for corporation tax or any other tax.
What is a Partnership Agreement?
This is a written agreement between partners detailing their rights, responsibilities and share of profits. It is not a legal requirement for an LLP to have such an agreement, but in the case of unequal division of profits and rights, it is advisable to have one drawn up.
Can I form an LLP with you?
Yes, as a Companies House e-filing partner, Rapid Formations can set up your Limited Liability Partnership. By selecting our LLP formation package, your partnership can be registered online within 3 hours. We can also provide a free Partnership Agreement should one be required.