What Is a Limited Liability Partnership?

Are you considering running your business as a limited liability partnership in the UK? This guide will tell you what you need to know about a limited liability partnership, how it is formed, and its differences from limited companies.

A limited liability partnership or LLP is a hybrid business structure or legal entity formed under the Limited Liability Partnerships Act 2000. The Act came into effect on April 6, 2001. LLPs must comply with regulations such as the Limited Liability Partnership Regulations 2001 and the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009.

Key Takeaways

• A limited liability partnership (LLP) is a hybrid business structure that combines the flexible internal management of a traditional partnership with the limited liability protection of a company.
• Unlike a standard partnership, an LLP is a separate legal entity which means it can enter into contracts, own property, and be held responsible for its own debts and liabilities.
• Members of an LLP are generally only liable for the amount they have invested in the business, protecting their personal assets from business claims or the negligence of other partners.
• An LLP must have at least two designated members who take on additional legal responsibilities similar to those of a company director, such as filing accounts and annual confirmation statements.
• There are no directors or shareholders in this structure; instead, the business is owned and managed by its members according to the terms of a private partnership agreement.
• The structure is specifically designed for profit-making ventures and is particularly popular among professional service firms such as solicitors, accountants, and architects.
• For tax purposes, an LLP is transparent because the entity itself does not pay corporation tax; instead, each member pays income tax and national insurance on their individual share of the profits.

How Is an LLP Formed?

Limited liability partnerships (LLP) can be formed by registering the LLP with Companies House, the official Registrar of Companies in the UK.You can form a limited liability partnership with two or more members to make a profit. That means that non-profit or charitable organisations cannot establish an LLP. Members must come up with a written agreement that indicates conditions on how the business will operate, including profit sharing, dispute settlement, and member responsibilities.

Members or partners do not need to be UK residents, but the registered office address of the LLP must be based in the UK.

An LLP is taxed like a partnership. Designated members pay tax depending on their share of the profits but are not personally liable for the business’s debts. Accountants, solicitors, surveyors, consultants, architects, and other professionals prefer a limited liability partnership since it offers the benefit of protected liability and allows them to keep their individual earnings, as opposed to a limited company with shareholders.

The steps you need to take in setting up an LLP are as follows:

• Have at least two designated members
• Choose a name
• Have a registered address
• Create an LLP agreement
• Register your LLP (you can use Companies Made Simple for easy set up)

LLP Registration

Most LLP registrations are now done online. Companies Made Simple provides a full suite of services for aspiring entrepreneurs and industry professionals who want to set up a business or partnership. If you’re interested in registering your LLP with us, we need these details from you:

• Name of the LLP
• The country where the registered office is located
• The address of the registered office
• The names and addresses of all members

Naming Your LLP

Your name must end in “Limited Liability Partnership” or “LLP” and cannot be the “same as” or “too like” another registered company’s name.

“Same as” Names

“Same as” names are names where the only differences from an existing name are either one of the following:

• punctuations or special characters, like the “plus” (+) sign
• a word or character similar in appearance or meaning
• a word or character used in UK company names (“company” or “co”)

Example: “Alluring Scents Ltd” and Alluring Scents, UK” are the same.

You can only register a “same as” name under the following conditions:

• your LLP is part of the same group as the company or LLP with the existing name
• you have written confirmation that the other company has no objection to your name

“Too like” Names

You may have to change your name if another company complains that your name is “too like” theirs.

Example: J & K Consultants Ltd and J and K Consulting Limited

See tips on how to choose the best name for your business.

LLPs versus Limited Companies

An LLP is neither a partnership nor a company. A limited liability partnership is similar to a limited company in the following criteria:

• Is a legal entity separate from its members
• It must be incorporated with Companies House either directly or through a company formation agent like Companies Made Simple.
• It must file a Confirmation Statement and Annual Accounts every year with Companies House.

A limited liability partnership differs from a limited company by the following criteria:

• Is solely for profit-making businesses
• There must be an LLP agreement stating how the LLP will be run
• Must have at least two designated members who are responsible for statutory filing and other requirements
• Its structure is flexible and can be modified by their members
• Does not pay corporation tax

Set up Your LLP Now

Companies Made Simple has formed over 1 million companies. The entire process can be done online, quickly and easily. Our LLP setup service includes registration with Companies House in as little as three working hours, a free LLP agreement, a printed certificate of incorporation, and a free domain name.

FAQs

What is the main difference between an LLP and a traditional partnership?

The main difference is that a Limited Liability Partnership (LLP) is a separate legal entity, whereas a traditional partnership is not. In an LLP, the members have limited liability, meaning their personal assets are protected if the business faces financial trouble. In a traditional partnership, the partners are personally responsible for all business debts and the actions of their partners.

How many members do I need to start an LLP?

To incorporate an LLP in the UK, you must have a minimum of two members at all times. These members can be individuals or corporate bodies, such as another limited company. If the number of members falls below two for more than six months, the remaining member may lose their limited liability protection and become personally responsible for the partnership’s debts.

What are the responsibilities of a designated member in an LLP?

Designated members have extra legal duties compared to ordinary members, similar to those of a company director. They are responsible for appointing an auditor, signing the annual accounts, and filing the confirmation statement with Companies House. They must also notify Companies House of any changes to the partnership, such as a change of registered office address or the appointment of new members.

Is an LLP taxed in the same way as a limited company?

No, an LLP is treated as "transparent" for tax purposes, meaning the partnership itself does not pay Corporation Tax. Instead, the profits are shared among the members, and each member pays Income Tax and National Insurance on their specific share. This differs from a limited company, where the business pays tax on its profits before any dividends or salaries are distributed to shareholders or directors.

Do I need a written partnership agreement for an LLP?

While it is not a legal requirement to have a written LLP agreement, it is highly recommended to have one in place. Without a formal agreement, the partnership will be governed by default provisions in the Limited Liability Partnerships Act 2000. These default rules may not suit your specific business needs, especially regarding how profits are split, how members can leave, or how disputes are resolved.

Can an LLP be used for any type of business?

An LLP must be set up with the intention of carrying out a business for profit. While they are most commonly used by professional services like law firms, dental practices, and accountancy firms, any group of two or more people can use this structure for a profit-making venture. Non-profit organisations or charities cannot usually operate as an LLP and should look at other structures like a company limited by guarantee.

What information about an LLP is made public?

Like a limited company, certain details about an LLP are available on the public register at Companies House. This includes the registered office address, the names and service addresses of all members, and the annual accounts. However, the internal LLP agreement remains a private document, allowing members to keep their specific profit-sharing arrangements and internal management rules confidential.