This page is here to set out the facts about Limited Liability Partnerships, explaining what they are and laying out the questions you should ask to decide if it is the best structure for your business. Nothing on this page or website is intended as legal advice, and we recommend that you seek appropriate professional advice if you have any doubts about the best structure for your business.
What is a Limired Liability Partnership
A Limited Liability Partnership combines features of old fashioned partnerships and limited liability companies. Like limited liability companies they offer the protection of limited liability to the shareholders. Like traditional partnerships they offer a flexible and tax structure and governance arrangements.
Limited Liability Partnerships (LLPs) are very recent, having been introduced as late as 6 April 2001. LLPs were designed for traditional professional partnerships such as solicitors, accountants or architects whose professional bodies had not previously allowed them to incorporate as limited companies.
Benefits of Limited Liability Partnerships
o Unlike a conventional partnership partners (also known as members) can limit their personal liability for issues such as employee liability.
o Limited Liability Partnerships allow for more flexibility with voting rights and rights to partnership assets when the partnership ends. This can be especially useful when allowing for new or retiring partners.
o The tax treatment can be advantageous compared to companies
How to Form a Limited Liability Partnership
An LLP needs to have the appropriate forms filed with Companies House to be formed, in the same way as a limited company. A Certificate of Incorporation is issued by the Registrar of Companies on receipt of these forms.
As a word of warning, Companies House will check the proposed name before incorporation to make sure that the name is not used by a company or another LLP. We strongly recommend that you return your completed documentation as soon as possible because Companies House runs on a ‘first come, first served’ basis. A delay can mean that you will lose your name to a rival.
The Partnership Deed
We strongly recommend that you have an agreement to establish the duties, rights and responsibilities of each of the partners and to set out how the business will be run on a day to day basis. The legislation has few provisions that govern these relationships.
We provide a model Partnership Deed that:
o Acts as a formal agreement setting out the rights and obligations of the partners during the existence of the partnership
o Sets out the conditions when the partnership is dissolved
o Gives details of profit share (with a presumption of equal profit share)
o Allows for monthly salaries to prepay profit shares.
o Allows you to set the decision making procedures
o Puts in place holiday arrangements
o Sets rules for partners outside interests.
How is a Limited Liability Partnership taxed?
Limited Liability Partnerships are, mostly, taxed in the same way as traditional partnerships. The taxman “looks through” a partnership’s profits and treats them as the personal income of the partners, with each partner being assessed on their share of the LLPs income or gains. There are some differences with the traditional partnership a loss relief is not unlimited for the limited liability partner.
When a traditional partnership converts to limited liability status, an exemption from stamp duty is usually granted on the transfer of the partnership property as long as all the partners in the existing partnership transfer to the LLP with identical interests.
How is a Limited Liability Partnership Managed?
You should make sure that any agreement addresses how the LLP is managed and what the duties and responsibilities of each of the members is.
LLP partners are free to decide their internal relationships, in the same way as conventional partnership. Because the Limited Liability Partnership is a separate legal entity it can hold property and enter into contracts. Like a company, an LLP continues as before even when its members change.