A limited liability partnership (LLP) is a partnership with limited liability for its members. It has the flexibility of a partnership and is taxed as a partnership. In other respects, it is similar to a private company.
Here are some quick facts about this type of company structure:
- In some professions you may require something a little more customized than a limited liability company with a set structure. An LLP is a formal structure that requires a written partnership agreement and usually comes with annual reporting requirements depending on your legal jurisdiction.
- You will often find law, accountant and achictect firms form using this company structure.
- Professionals who use LLPs tend to rely heavily on reputation. Most LLPs are created and managed by a group of professionals who have a lot of experience and clients between them. By pooling resources, the partners lower the costs of doing business while increasing the LLP’s capacity for growth. They can share office space, employees and so on. Most important, reducing costs allows the partners to realize more profits from their activities than they could individually.
- Each member/ partner have their own limited liability meaning they can only lose what they themselves have invested.
- LLPs do not have to pay any corporation tax. They only pay taxes on profits once when the partners receive their share of them (income tax).
- Easier to change ownership than other company structures as all that is required is agreement with all current owners.
What are the legal requirements of an LLP?
An LLP must have a minimum of two people (members) who have the intention of starting lawful trade and to (or intending to) make a profit. A member can be a person or a company, known as a 'corporate member'.
There is no maximum number of people that can join an LLP. A partner need not be a UK resident.
An LLP also requires a PSC register, a registered office address that must be based in the UK and cannot be a PO Box or otherwise.
All members must carry out their legal responsibilities set out in their LLP agreement.
When registering a Limited by Shares company, you'll need:
- A company name
- At least two members/ partners
- Details of people with significant control (PSC)
- A UK registered office
- To check whether you need to register for VAT
- A business bank account - to keep your personal and business finances separate (this is optional)
- A licence for some business activities - not all companies need a licence but use the licence finder to find out
- An LLP agreement