A limited liability partnership (LLP) is very similar to a limited company, but it has the flexibility of a business partnership.
A limited liability partnership shares many of the features of a normal partnership, but it also offers reduced personal responsibility for business debts.
Unlike sole traders and partners of normal partnerships, the limited liability partnership itself – not the individual members – is responsible for any debts that the LLP runs up, unless individual members have personally guaranteed a loan to the business.
Limited liability partnerships are more complicated and more expensive to set up than normal partnerships, as they have to meet many of the same requirements as limited companies.
An existing company cannot be converted into a limited liability partnership.
LLPs are designed to be used by profit-making businesses. Non-profit making organisations should not use this business structure.
Who can set up a limited liability partnership?
An LLP can be formed by two or more people who want to set up a profit-making business. Such people are called members, and members can also be firms as well as people.
How many members should an LLP have?
An LLP must have at least two members. Two of the members will be called ‘designated members’. Their details, and any changes in those details, must be submitted to Companies House.
What are the rights and responsibilities of LLP members?
LLP members normally share in both the responsibilities of running the business and the profits. But exactly how their rights and responsibilities are defined and divided depends on the limited liability partnership agreement.
What responsibilities do the designated members have?
Designated members have the same rights and duties as non-designated members, but they have additional responsibilities such as appointing an auditor, signing the accounts, delivering accounts and the Annual Return, and notifying Companies House of any changes.
What happens if the number of members is reduced?
If the number of members falls below two and remains as such for more than six months, they will lose the benefits of limited liability.
Does the company need to be registered at Companies House?
Yes. If you wish to register the LLP yourself, you must complete application form LL IN01 and send it along with the appropriate fee to Companies House.
Is a limited liability partnership agreement necessary?
It’s not absolutely necessary, but it’s a good idea to make a draw up a limited liability partnership agreement as it helps to prevent misunderstandings and disputes between members.
If the members don’t have one, they will be governed by the terms of the Limited Liability Partnerships Act 2000 (LLP Act 2000), which doesn’t offer solutions to many of the problems that can arise. The Act also may not suit the way that members of an LLP may want to work together.
Get expert help drawing up an LLP agreement with Lawpack’s solicitor-approved limited liability partnership agreement template.
How to name the LLP?
The name of the business must end with the words ‘limited liability partnership’.
The name must be displayed in the same manner as a limited company’s name. The LLP’s stationery, websites, emails, etc. must display the trading name, the fact that it is an LLP, the place of registration, the registration number, and the address of the registered office.
What taxes are paid by an LLP?
An LLP is taxed as a partnership. Like general partnerships, profits are shared among the members of an LLP. Individual members – not the limited partnership – pay tax on income or gains.
What about the company accounts?
LLPs must make their accounts and registers available for inspection.
LLPs are liable to similar penalties for late submission of accounts, etc., and the accounts must be prepared according to statutory rules.
Published on: November 18, 2011