An LLP provides its members with limited liability (like a limited company), but they are taxed in a similar way to self employed partners. It is a popular business structure in professional occupations, such as accountancy and legal industries.
In simple terms, an LLP has the organisational and tax flexibility of a partnership, but in all other ways it is very similar to a private limited company.
The limited liability afforded to partners in an LLP ensures that their personal assets are kept separate from those of the business itself (except in cases where fraudulent activity has taken place).
This differs from the status of a self-employed ‘partnership’ where the assets of the business and the partners who own it are treated as one.
Limited Liability Partnerships – Key Points
- A firm of two or more people may form an LLP.
- The business structure can be used in all parts of the UK.
- An LLP has similar Companies House reporting requirements to those of limited companies.
- An LLP must file an Annual Return.
- An LLP must let Companies House know of any changes to its registered address, or the names and addresses of its officials.
- An LLP must file its annual accounts with Companies House, as well as HMRC.
- Members’ rights should be outlined in a Deed of Partnership, which details how the LLP is to be run, how profits are split, how members contribute to the LLP, and what happens if one partner wants to leave.
- If no formal Deed of Partnership exists, then the Limited Liability Partnerships Act will be used in the event of a dispute.
- LLP partners are taxed via the annual self assessment process, and must pay National Insurance Contributions on their income.
- All partners should register as self-employed with HMRC if they have not already done so.
- If the LLP turns over £81,000 during a 12 month period (2014/15), it must be registered for VAT. You would most likely voluntarily register upon incorporation if you run a professional services firm.
- The partners are ultimately responsible for the well-being of the LLP, that is complies with relevant legislation, and files information with the authorities accurately and on time.
How do you set up an LLP?
- You can incorporate an LLP electronically for £14, or via paper for £40.
- To set up an LLP, you must complete Form LL IN01, and send it to Companies House.
- Form LL IN01 contains the name of the LLP, its registered address, a statement of compliance, and details of all proposed members.
- As with limited company names, you must ensure that your proposed name hasn’t been taken, and doesn’t contain any ‘sensitive words and expressions’.
- You will receive a certificate of incorporation once the form has been processed by Companies House.
- If you decide, at some stage, to change the LLP name, you can submit a notice of change of name (Form LLNM01), as detailed in Chapter 5 of the Companies House Incorporation guide mentioned below.
The best starting place is Companies House Guide GPLLP1 – Limited Company Partnership Incorporation and Names.