In the UK, limited liability partnerships, or LLPs, are a type of business structure usually used by people that would otherwise operate as a partnership. For example, doctors, solicitors, accountants and dentists.
An LLP blends many of the characteristics of a private limited company with the idea of a partnership. In this post, we’re going to explore what an LLP is and what sets it apart from other corporate structures.
LLPs are a type of entity that allow people to work together whilst reducing the liability of the actions of other partners.
LLPs are registered with Companies House, and their registration number will start with a certain prefix depending on the jurisdiction they are registered in:
- OC – Limited Liability Partnership for England & Wales
- NC – Limited Liability Partnership for Northern Ireland
- SO – Limited Liability Partnership for Scotland
Partnerships and limited liability partnerships
In a traditional partnership, the partners are wholly responsible for any debts that occur within the partnership. A limited liability partnership differs from the traditional model, as it provides the partners with reduced financial responsibility. An LLP still acts like a partnership in many ways, including the way they are structured in terms of profit distribution, tax liability and internal management.
Limited companies and LLPs
As previously mentioned, LLPs and limited liability companies do share many traits. The most obvious similarity is that they both provide their members with limited liability.
They’re also both legal entities that need to be incorporated at Companies House. Due to the need to be incorporated, LLPs naturally have more stringent filing and reporting requirements.
Both companies and LLPs will need to have a registered office listed on Companies House. This will be the legal headquarters of the entity where they can receive official correspondence.
Their filing requirements with Companies House are also similar, in that accounts and a confirmation statement need to be filed once per year. In addition, LLPs are also required to maintain a People with Significant Control (PSC) register.
These two structures are also very different by design. The structure of a limited company will have at least one shareholder and at least one director, whereas an LLP must have at least two designated members and there are no directors.
Companies can either be set up as for-profit or non-profit ventures such as charities. LLPs on the other hand must always be for profit.
Another difference is the way in which each type of entity is taxed. Companies are expected to pay corporation tax on profits from their activities. This covers the entity as well as all of its members. With a limited liability partnership, each member is taxed separately as they will be considered as self-employed. Each member will be required to fill out a self-assessment tax return.
A company is required to have articles of association. These are the rules under which a company operates and are filed with Companies House to be displayed publicly. In contrast to this, LLPs have no such requirement. An LLP may choose to enter into a contract referred to as an LLP agreement. This document sets out the rules under which an LLP operates, including the amount of liability each member has.
Who is an LLP for?
Limited liability partnerships are ideal for people that already operate under a traditional partnership model. They can be beneficial for partnerships within industries that have a higher risk of claims for damages being made against them.
Looking to set up an LLP?
An LLP can either be set up directly with Companies House or through a company formation agent like ourselves.
One of the many benefits of our LLP package is that we will provide you with a free draft LLP agreement – plus, our team is on-hand to help with any incorporation questions you may have.
If you have any questions regarding LLPs, please leave them in the comments and we’ll be happy to help.