Benefits of converting an LLP to a limited company

Converting from an LLP to a limited company offers significant benefits to certain businesses. Indeed, an increasing number of firms in the professional services sector, which includes lawyers, accountants, architects, and medical practitioners, are moving away from the traditionally preferred partnership structure toward the limited company model.

We discuss the evolution of the partnership structure to incorporated status, the benefits of converting from an LLP to a limited company, and the steps required to make this change.

From general partnership to LLP and limited company

Before we discuss the benefits of converting an LLP to a limited company, let’s examine the evolution of the partnership structure in the UK.

Following the introduction of the Limited Liability Partnerships Act 2000, many businesses that traditionally operated as general partnerships decided to adopt the LLP structure. An LLP combines the benefits of incorporation with the distinctive aspects of the classic partnership model.

Several major accountancy practices, and a significant number of law firms, in particular, took the leap to limited liability partnership status.

The most obvious reason to convert from a general partnership to an LLP is to benefit from limited liability protection. The traditional partnership structure does not provide any protection from bad business debts and other liabilities. Conversely, members (partners) of an LLP are safeguarded from business liabilities in the same way as limited company shareholders.

Furthermore, a limited liability partnership is a separate legal entity. This means that an LLP can trade, purchase property, and obtain finance in its own name. This legal personality makes it easier to structure the business internally and access investment.

However, the LLP structure retains some essential features of the traditional partnership model, including individual taxation of members and greater flexibility in its internal organisation.

Nowadays, many professional businesses operating as LLPs are taking things a step further by converting to limited companies to enjoy the unique advantages of this structure.

What are the benefits of converting an LLP to a limited company?

Without a doubt, a key driving force behind converting an LLP to a limited company is the difference in taxation. Most notably, limited companies have the ability to retain profits in the business tax-efficiently and pay dividends to company owners.

1. Retained profits

Limited companies can choose to retain profits within the business rather than paying money out via salaries or dividends. Any profit reinvested in the business is only subject to Corporation Tax.

Since LLPs are tax transparent, members are treated as self-employed for tax purposes (unless they are salaried members under HMRC’s salaried member rules). As such, LLP members are generally liable to pay Income Tax and National Insurance contributions (NICs) on their individual share of profits, regardless of whether those profits are distributed or retained. 

2. Dividends

Unlike LLP members, who are liable to pay Income Tax and NICs on their share of profits, company owners (shareholders) can choose to pay themselves via dividends.

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The highest rate of tax on dividends is lower than the highest rate of Income Tax. Moreover, they are not subject to NICs. This means that it is often more tax-efficient for company owners to draw a combination of dividends and a director’s salary, taking into account tax-free allowances, etc.

3. Structural simplicity

Limited companies are generally set up and governed in line with the ‘model’ articles of association, with share ownership primarily determining overall ownership and control. 

Meanwhile, LLPs create their own LLP agreements. If they don’t, they normally fall back on the very basic ‘default provisions‘, which may not suit the needs of the business. Further, members may need to amend any agreement to accommodate changes to operational matters, which can be cumbersome.  

4. Sole ownership

A limited company can be owned and managed by one person, while an LLP requires a minimum of two members.

If there are fewer than two members at any point (e.g. if one member leaves or passes away), and this situation continues for more than 6 months, then the limited liability protection is lost and the sole remaining member becomes personally liable for debts incurred during that period. 

5. Limited liability

While both LLPs and limited companies enjoy limited liability, an LLP’s members may face greater risk if the business becomes insolvent.

The addition of section 214A to the Limited Liability Partnerships Regulations 2001 introduced so-called ‘clawback’ provisions, which mean that members can be pursued for the LLP’s debts in certain circumstances.

6. Expansion

Takeovers and acquisitions are often more straightforward for limited companies than LLPs.

In general terms, you cannot buy an LLP in the same way you can acquire a limited company through the purchase of shares.

The acquisition of an LLP usually entails purchasing the partnership’s goodwill and assets, which often involves further complications – for example, the transfer of existing clients to the purchasing entity.

7. Ownership flexibility

While not necessarily a primary reason to convert an LLP to a limited company, it’s worth noting that limited companies can offer considerable flexibility in ownership structure, such as through the creation of different share classes with varying rights to dividends, capital, and voting. 

8. Investment

It is possible to purchase shares in a company without becoming a director. This can make it easier to attract outside investors.

In contrast, investors in an LLP generally become members, which potentially entails more responsibility. Investing and selling shares in a limited company is usually more straightforward than investing in an LLP.

9. Stock market listing

Since LLPs do not have shares, they cannot obtain external investment by listing on the stock market.

Private limited companies are also unable to trade their shares on public exchanges. However, under certain circumstances, they can convert to public limited companies (PLCs), provided they meet certain eligibility and procedural requirements. 

How to convert an LLP to a limited company

There is no specific procedure for an LLP to re-register as a limited company. Instead, it involves a process of transferring the business from the old entity to the new one.

The steps to convert an LLP to a limited company are as follows:

• Register a limited company at Companies House. The easiest way to do this is online through a company formation agent such as 1st Formations
• Transfer assets and liabilities from the LLP to the new limited company – e.g. under a contract
• Individual LLP members should resign and enter into employment contracts with the new limited company
• Dissolve the limited liability partnership 

It is worth remembering that taxes may be payable on the transfer of assets from the LLP to the limited company. We recommend seeking legal and tax advice before changing your business structure.

Sector focus: law firms

Whilst many professional services have moved away from partnership models to incorporated structures, the legal sector saw some of the most pronounced changes in this regard.

Law firms traditionally operated as partnerships, with the majority of profits being distributed amongst a small number of equity partners sitting at the top of a hierarchical business organisation. 

However, many firms were quick to convert to LLP status when it became a possibility in 2001. This provided limited liability, whilst also allowing them to maintain many of the attributes of a partnership.

The introduction of alternative business structures (ABS) through legislation passed in 2007 accelerated the move away from traditional business models towards a limited company structure that facilitated external investment.

ABSs allow non-lawyers (and companies outside the legal profession) to be involved in the ownership and management of a law firm. In the pre-ABS era, it was much harder for law firms to obtain outside investment. 

Gaining access to finance was particularly important in the wake of the 2008 financial crash.

Speaking in 2011 to Legal Futures, George Bull of Baker Tilly (now RSM) said the driving force behind law firms converting from LLP to limited company structures revolved around finance after 2008:

With firms finding banks less willing to lend, self-finance becomes more important. If you’re going to finance your firm out of post-tax profits, you want the tax bill to be as low as possible. In most situations, a limited company will be a more tax-efficient vehicle than an LLP for retaining profits for reinvestment in the firm.

A few years later, Gateley became the first UK law firm to float on the stock market when it went public in June 2015, raising £30 million in the process. Speaking at the time, CEO Michael Ward said:

The IPO will provide the platform for the continued success of the business, as well as accelerate its growth opportunities and facilitate value creation through an increased ability to acquire, incentivise, differentiate and, where sensible, diversify.

Breakdown of solicitor firms by structure

According to statistics from the Solicitors Regulation Authority (SRA), more than half of all solicitors’ firms (57%) in 2025 are incorporated companies, while 16% operate as LLPs, 11% remain traditional partnerships, and 16% operate as sole traders. 

This is a marked shift compared to only 10 years earlier, when 22% of firms were traditional partnerships, 15% operated as LLPs, 27% as sole traders, and only 35% were set up as limited companies.

Law firms will likely continue to move toward limited company formation as they increasingly merge or collaborate with accountancy practices and technology companies or seek access to external investment and expertise to facilitate growth.

This could help them attract new talent, for whom the traditional partnership model feels increasingly outdated.

Ready to form a limited company?

Whether you’re looking to form a new LLP, set up a limited company, or convert an existing LLP to a company, 1st Formations can help. We offer a range of company formation packages and corporate services, designed to suit a variety of needs and budgets. 

If you have any questions about the incorporation process or requirements, our London-based team is on hand to provide expert advice and ongoing support.