What you should know...
A limited liability partnership (LLP) is an alternative type of business structure which is popular with professionals who normally operate as a general partnership, such as solicitors, doctors, architects. but whose members require limited liability. The key differences between an LLP and a limited company are:
- An LLP does not have directors, shareholders or guarantors; instead it has members, who are more commonly referred to as 'partners'. There must be at least 2 members to register an LLP, but there is no upper limit to the number of members permitted.
- LLPs are governed by the Limited Liability Partnership Act 2000 and The Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, rather than the Companies Act 2006.
- LLPs are taxed as partnerships, meaning they are not liable for Corporation Tax but each member is personally responsible for paying Income Tax and National Insurance on their individual profit.
Benefits of a limited liability partnership
- LLP profits are shared between its members.
- The method of taxation for LLPs allows for an increased level of tax transparency, in addition to allowing members to remain separate for tax purposes.
- You can appoint another company (termed as a ‘corporate body’) to be a member of an LLP. Any corporate members will be liable for Corporation Tax rather than Income Tax.
- LLP members can be based anywhere in the world - there is no requirement for members to be UK residents.
Forming a limited liability partnership
1st Formations offers a dedicated LLP Package for incorporating limited liability partnerships. Below are the key points about LLPs:
- They must be registered with Companies House, the official Registrar of Companies in the UK.
- They must have a minimum of 2 members, and at least 2 of the members must be ‘designated’ members who are responsible for ensuring all legal obligations of the company and its members are met.
- They must have a registered office address for incorporation. This should be a full postal address (not a PO Box Number) in the same UK jurisdiction (country) the LLP is registered in.
- LLPs must supply information about their People with Significant Control (PSCs). Generally, the members will be the PSCs.
- Designated members must ensure that HM Revenue & Customs (HMRC) is informed of the LLP's existence and that a Partnership Tax Return is filed each year.
- LLPs must be formed with the view to making a profit. This business structure is not suitable for non-profit organisations.
Frequently asked questions
Who would form an LLP?
A limited liability partnership (LLP) is a structure used by professionals working in industries that traditionally operate as partnerships, such as solicitors, doctors, architects, etc.
What is an LLP member?
An LLP member is a partner in a limited liability partnership. You must have a minimum of 2 members to incorporate an LLP.
Who can be a member of an LLP?
An LLP member can be any person of any nationality, or a corporate body. Any individual who wishes to be an LLP member must not be a disqualified director of a limited company or an undischarged bankrupt.
What is the difference between a member and a designated member?
Designated members have exactly the same rights and duties as all other LLP members, but they have the extra responsibility of ensuring the LLP and its members meet all statutory requirements and obligations.
They must ensure the confirmation statement and annual accounts are filed accurately and on time, and notify Companies House of any changes to the LLP. They will also oversee all formalities in the event of the LLP being dissolved.
Do I need an LLP agreement?
A limited liability agreement or partnership agreement is not a legal requirement, but we recommend having one in place.
Generally, all LLP members will have equal rights, responsibilities, and share of profits. However, the flexibility of an LLP structure allows members to allot different rights, duties, and proportions of profits in any way they wish. An LLP agreement should be drawn up to stipulate the specifics of each member’s rights if they will be anything other than equal.
How are LLP members taxed?
LLP members must register with HMRC for Self Assessment and pay Income Tax on any profits they make. They are each responsible for completing and filing their own tax returns, and paying their tax on time. Limited liability partnerships are not liable for Corporation Tax.
Can I set up an LLP for a non-profit organisation?
No. A limited liability partnership is not suitable for a non-profit organisation, due to the ways in which LLPs are taxed. If you wish to operate a non-profit, you would be best advised to register a company limited by guarantee.