What is a limited liability partnership?

Limited liability partnerships are quite widespread, whether you are aware of them or not. Often, for this type of companies you will notice a lawyer or accountant will use the acronym LLP following a list of names.

What is a limited liability partnership?

Here are some definitions and explanations to give you a clear view of what LLPs are.

A limited liability partnership (LLP) is a legal structure of business that was introduced by the Limited Liability Partnership Act of 2000. It shares characteristics that are alike or similar to those of companies, limited partnerships, and regular partnership structures.

LLPs are a versatile legal and tax entity that enables partners to achieve economies of scale through collaboration while also limiting their liability for the conduct of other partners. As with any legal entity, it is critical to check the applicable provisions of law in your country before choosing to form an LLP.

The Limited Liability Partnerships Act 2000 and the Limited Liability Partnerships (Application of the Companies Act 2006) Regulations 2009 regulate LLPs.

It is a legal entity distinct from its members (partners), who are personally liable for the capital plus any personal guarantees. The partnership is incorporated with Companies House and is available to profit-making businesses exclusively.

Partners are obliged to keep a register of members and a registered address for the business. There is no limit on the maximum number of partners permitted, but at least two members, either persons or limited companies, must be present at the time of incorporation. Additionally, an LLP can be formed with a single individual and a dormant company.

Why choose an LLP?

You probably wonder what are the major differences between LLPs and other Partnerships and why you should decide on this as your business structure? Here is why.

The majority of LLPs are formed and are usually under the management of a group of professionals who collectively have a wealth of experience and clients and provide specified services.

By combining resources, the partners reduce the cost of doing business while expanding the LLP's growth potential. They also share office space. Cost reduction also enables you and your partners to earn a higher profit from their activity.

In an LLP you can add and remove partners as per the Agreement. Due to the existence of a partnership agreement for an LLP, partners may be added or retired in accordance with the terms of the agreement.

Limited liability means that creditors cannot seize a partner's personal assets or income if the partnership fails.

LLPs, similar to LLCs, are taxed as a flow-through entity. This means that you and your partners receive untaxed profits and are responsible for their own taxes. Both an LLC and an LLP are preferred to a corporation, which is taxed as a separate entity and then taxed on payments to shareholders. This ensures that the commercial decision on whether to form a limited liability partnership or a regular partnership is tax-neutral. In general, it is the flexibility of an LLP that distinguishes it from an LLC or other corporate entity for a particular sort of professional.

Who owns the partnership and what are the partners’ responsibilities?

An LLP is owned by its members, each of whom bears specific responsibilities, including to act according to the partnership agreement. Additional responsibilities for designated members include the following:

• Registering the partnership for self-assessment and, if appropriate, VAT.
• Maintaining accurate accounting records.
• Preparing Annual accounts and an annual confirmation statement to file with Companies House.
• Inform Companies House of any business changes, such as the registered office address or member details.
• Appointment of an auditor, if necessary.
• Acting on behalf of the LLP in the event of its dissolution or winding up.