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Last edited 15 Oct 2020
Limited Liability Partnership LLP
It is important that businesses have a formal structure that defines their legal responsibilities. Traditionally, this has included business structures such as; sole trader, limited company, partnership, and so on. The limited liability partnership (LLP) is a relatively recent business structure which combines elements of the traditional partnership with those of limited companies.
A limited liability partnership can be set up between 2 or more individuals and each member can be a person or a company. Members of LLPs carry joint, but not several liability for the actions of the LLP, and so a member cannot lose more than they have invested, unless fraud or some other form of wrongdoing is proven.
LLPs are most commonly found in the accountancy and legal professions but they are increasingly used as vehicles for property investment and, in that context, are particularly useful where member investors may have very differing tax positions to consider; a situation which can be assisted by the simple tax transparency which LLPs provide.
In a limited liability partnership, the businesses’ profits are divided between the partners. From a tax perspective LLPs are treated in the same way as traditional partnerships in that income is taxed in the year that it is apportioned to the members. Members are therefore effectively treated as self-employed in so far as tax is concerned.
Unlike traditional partnerships, LLPs are obliged to file accounts and other documents at Companies House in much the same way that applies to companies so, to that extent, elements of their affairs are visible on the public record.
In order to set up a limited liability partnership, the following is required:
- A name.
- Two or more designated members.
- A registered address.
- A limited liability partnership agreement which states how the business will be run.
- Registration of the company with Companies House.
Usually a LLP is governed according to a LLP Agreement which is similar to a company’s memorandum and articles, setting out the responsibilities for the partners and the profit share. LLPs are highly flexible entities and the terms of agreement may include the following details:
- Profit share agreement between members.
- Responsibilities for agreeing decisions.
- Responsibilities for individual members’.
- The procedure for members leaving or joining the partnership.
All partnerships require at least two designated members who will have responsibilities for activities within the company; for example, maintaining the company accounts. It is possible to have any number of ordinary members.
- Registering the partnership for self-assessment with HMRC.
- Registering the partnership for VAT (if sales are anticipated to exceed the VAT threshold).
- Appointing an auditor.
- Maintaining accounting records.
- Preparing, signing and sending annual accounts and other documentation to Companies House.
- Notifying Companies House of any changes to the partnership.
- Acting on behalf of the partnership if it is closed and dissolved.
This article was created by--Martinc 15:35, 2 April 2015 (BST)
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