Just What Is A Limited Liability Partnership And How Can It Benefit Me

In April 2001, legislation was introduced in the United Kingdom allowing the formation of what are known as Limited Liability Partnerships (LLPs).

LLPs do not replace traditional partnerships as a company structure, but are an additional option that limit personal liability if anything should go awry with the business, much in the same way as company shareholders are able to do.

Excluding exceptions such as instances of wrongdoing or of fraud, the members of a limited liability partnership cannot lose more than they have invested in to the partnership.

Who Should Consider An LLP?

While, in theory, any group of people setting up in business together might choose an LLP, the advantages are confined mainly to certain professions where they are frequently limited from setting up limited company by their professional bodies.

Solicitors, accountants and surveyors are among the most common groups that would most benefit from establishing a Limited Liability Partnership.

Setting Up An Limited Liability Partnership

Setting up a Limited Liability Partnership is fairly straightforward, though a members agreement - sometimes called a Deed of Partnership - will need to be in place covering the responsibilities of each member.

This agreement covers such things as who is the 'designated member' responsible for signing the annual accounts and acting on behalf of the LLP if it is dissolved in the future. It will also include details of the amounts of money each partner puts into the business and what would happen if one partner leaves the business.

The actually process of setting up the LLP simply requires the newly formed partnership to be registered with Companies House.

Taxation Issues for UK LLPs

Limited Liability Partnerships are considered to be 'tax transparent'. This means that the partnership itself, in effect, pay no tax.

Tax is paid by the individual member partners in proportion to the income gained through the partnership.

As with other business structures, the LLP will have to register for VAT once turnover reaches the £64,000 threshold.

Further, if there are employees who are not members of the partnership, the LLP will have to set up a PAYE system to collect tax and National Insurance contributions for those employees.

Benefits of an Limited Liability Partnership

In short, the benefits of forming a Limited Liability Partnership rather than a Limited Company or traditional partnership are as follows:

1) All the partners in the LLP have limited liability protection.

2) All partners receive partnership tax treatment (there is no entity level income tax).

3) A Limited Liability Partnership allows for more flexibility in splitting partnership profits and losses.

4) The management structure of an LLP is more streamlined than in a limited company.

So, this business structure can benefit not only professionals such as solicitors who would usually set up traditional partnerships but a wide range of businesses.

As it is a fairly new type of company, the advantages are maybe not as well known as for other types of company structures, but you may find it beneficial to talk to a solicitor or accountant about whether an LLP is the best choice for you.