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 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 any 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 limited 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.
- LLP profits are shared between all members.
- The method of taxation for LLPs allows for an increased level of tax transparency, in addition to and allowing members to remain separate.
- You can appoint another company (termed as a ‘corporate body’) to be a member of an LLP. Any corporate members would 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 package for incorporating Limited Liability Partnerships. In order to register your LLP with Companies House. Below are the key points to be aware of when forming an LLP.
- All LLPs must be registered with Companies House, the official Registrar of Companies in the UK.
- An LLP must have a minimum of 2 members. You must also assign at least 2 ‘designated’ members who are responsible for ensuring all legal obligations of the company and its members are met.
- All LLPs must provide a registered office address for incorporation. This must be a full postal address (not a PO Box Number) in the same company as incorporation.
- Standard Industrial Classification (SIC) codes should be provided to explain what your LLP does. You can provide up to four SIC codes.
- You must supply information about People with Significant Control (PSCs) in the LLP. Generally, the members will be PSCs.
- Designated members must ensure Inland Revenue is informed of the LLPs 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 un-discharged 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 a Partnership Agreement?
A 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 proportion of profits in any way they wish. A Partnership 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.