Limited Liability Partnerships - your questions answered
What are the incorporation requirements?
The name of an LLP has to end in "LLP" or "LIMITED LIABILITY PARTNERSHIP". LLPs are like every other type of company and are subject to identical names, 'same as' rules and sensitive word regulations
There must be at least two designated members in the LLP (can be individuals or companies) but there is no statutory maximum.
The designated members have principal responsibility for statutory filing requirements and associated matters. For example, they must sign the annual accounts on behalf of all the members and ensure that the accounts and annual returns are filed at Companies House every year. In all other respects a designated member has the same rights and responsibilities as any other member of the LLP.
Which is better - an LLP or a Limited Company ?
Limited liability partnerships have been around since April 2001. They offer the organisation, and the individuals who own it, the benefits of being a corporate body including the protection of limited liability, with flexible structure and operating as a partnership and being taxed as such.
A Limited Liability Partnership has the advantage of taxation like a partnership combined with limited liability, corporate personality and organisational flexibility. New partners can be taken on as the business grows, and they offer protection to members it the business fails.
An LLP can offer greater flexibility than a limited company in relation to profits – the LLP Agreement can offer to vary the allocation of profits, different apportionment of income profits and capital profits between members and allow for distinctions in percentages of profits payable to different members for different years.
For Limited companies, all shares of the same class in a company must all have a dividend declared at the same level for each share and it is not straightforward to vary this.
Membership - An LLP can easily make changes to the membership. The internal flexibility of LLPs allows participation in management. Whilst two designated members must be registered at Companies House, all other members can join or leave an LLP without undue formalities.
It is often easier for current employees of a limited company to become members of an LLP with the incentive that brings to participate in the growth of the business rather than implementing share scheme arrangements which have to make provisions for good and bad leavers. From a tax perspective, self-employed tax treatment will not apply to all former employees but with an awareness of the three HMRC tests it could be possible to steer around the difficulties in most cases.
It used to be popular to run LLPs with corporate members but due to changes in the taxation of LLPs this practice is likely to diminish.
While articles of association have to be filed for companies, LLP's members are free to define their relationship within a confidential members' agreement and there are no requirements for board or general meetings or decision-making by resolution. By operating as an LLP, members can avoid the rigid internal structure of a Company.
How can we help ?
We can help you to electronically register your LLP quickly and easily, and if required, administer it with the minimum of fuss.
How to proceed
Please visit our company formations page for online details or get in touch to provide your details via phone. On receipt of the same, we will be able to arrange for the LLP to be incorporated on your behalf.
What happens next?
Moving forward after establishing your limited liability partnership, (LLP) you need to be aware of the ongoing obligations for the LLP and its members. These include statutory obligations and obligations of members to Her Majesty's Revenue and Customs (HMRC). Find out more.