Limited Liability Partnerships (LLPs)

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What is a Limited Liability Partnership?

It is a type of business structure with many features of a traditional partnership, but it exists as a separate legal entity liable for its own debts. It also offers limited personal liability to its members (partners).

How many people are required to form a LLP?

A minimum of two members are required for LLP company formation. There is no statutory maximum number of members for a LLP, and members are not required to be UK residents.

What are the benefits of a LLP structure?

LLPs offer a number of benefits for profit-making businesses, such as limited liability for business debts, a flexible management structure, more flexible options for distribution of profits, and each member paying income tax on their profits rather than corporation tax.

What is the difference between a LLP and a limited company?

LLPs are similar to limited companies because they are subject to aspects of company law and provide limited liability to their members; however, they also offer the benefits of a traditional partnership, such as income tax liability rather than corporation tax, and they are more flexible in regards internal structure, distribution of profits and members’ rights. Unlike a limited company, a LLP does not have a memorandum or articles of association. Furthermore, the role of director and member in a limited company is combined in LLPs (“partners”). An LLP is governed by the Limited Liability Partnerships Act 2000 rather than the Companies Act of 2006.

Who would form a LLP?

A LLP structure is used by professionals who typically set up as a partnership (such as doctors, solicitors, and accountants), but who require the protection that limited liability provides.

How is a LLP taxed?

A LLP is treated as an ordinary partnership for tax purposes. The members pay income tax on their share of profits. The partnership itself is not liable for tax. Most partners will set themselves up as self-employed and register for self-assessment income tax.

What rights and responsibilities do partners have?

LLPs offer a flexible management structure which gives members the opportunity to distribute rights, responsibilities and profits however they see fit. If any aspects of the partnership are divided unequally, it is advisable to have a Partnership Agreement in place stipulating these details. Furthermore, each LLP must have at least two ’designated‘ members - these are members with additional responsibilities, such as selecting the auditor.

Can another company be a partner?

Yes, a corporate body can be a partner of a LLP, but any profits it makes will be liable for corporation tax rather than income tax.

What are the annual requirements of a LLP?

A LLP is subject to the same rules as a limited company, and must send a confirmation statement and annual accounts to Companies House. At least two members must be named as ‘designated members’ and bear the responsibility of filing annual accounts and returns. Individual members are responsible for paying income tax on their share of company profits. The partnership itself is not liable for corporation tax or any other tax.

What is a Partnership Agreement?

This is a written agreement between partners detailing their rights, responsibilities and share of profits. It is not a legal requirement for a LLP to have such an agreement, but in the case of unequal division of profits and rights, it is advisable to have one drawn up.

What are the legal requirements of a LLP?

To form a LLP through Companies House, you must have a minimum of two members and a UK registered office address in the same jurisdiction as incorporation. This must be a physical address where official mail can be delivered and legal notices served. HMRC must be informed of a LLP’s existence and an annual partnership tax return is required. One member is nominated to take responsibility for these requirements. A LLP structure cannot be used for non-profit purposes, as it is a requirement that it is formed with the intention of making profit.

Can I form a LLP with you?

Yes, as a Companies House e-filing partner, Rapid Formations can set up your Limited Liability Partnership. By selecting our LLP formation package, your partnership will usually be registered by Companies House within 3 to 6 working hours, although sometimes it may take a little longer. We can also provide a free Partnership Agreement should one be required.

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