What is a Limited Liability Partnership?

Since 2001, businesses can be run as limited liability partnerships (LLPs) - a limited liability partnership offers 'members' of the partnership reduced personal liability if the business gets into financial difficulties, with the liability limited to the amount they have invested in the business and to any personal guarantees they may have given to, for example, banks.

The partners in an LLP will however, be liable in the same way as company directors for fraudulent trading.

LLPs are taxed differently to companies - profits are treated as the personal income of 'members' in the same way as are the profits of a normal partnership. But LLPs have to produce detailed accounts for the Inland Revenue and Companies House which are similar to those required of companies.

Click on the links below if you wish to view a specific section of the information.

Who Can Form An LLP?
Naming The LLP
Deed Of Partnership
LLP Requirements
Taxation Of An LLP?

Who can form a limited liability partnership?

Generally two or more persons (For this purpose persons can mean an individual or a company) who are associated for the purpose of carrying on a lawful business with a view to profit, may form an LLP.
LLP’s are not available for non profit-making activities.

All LLP’s must have at least two, formally appointed , designated members at all times. In a situation where there are less than two designated members then all members will be classed as designated members.

Designated members will have the same rights and duties to the LLP as any other member, however in law the designated members have extra responsibilities which are :

• Appointment of auditors (If required)
• Signing the accounts on behalf of the partnership members
• Ensuring that signed accounts are delivered to companies house
• Notifying the registrar of any changes to the membership, a change of registered office address or a change to the LLP name.
• Ensuring that an annual return is completed and delivered to the Registrar
• Acting on behalf of the LLP in the event of dissolving and winding up the partnership

Designated members are accountable in law for failing to carry out these legal responsibilities.

Naming the LLP

All limited liability partnerships must end with the words Limited Liability Partnership or the abbreviation LLP.
Similarly to limited companies they should not be ‘the same as’ a current LLP. If the name is sufficiently different to be accepted on registration it can be objected to by a second LLP on the basis that it ‘too like’ a registered name. In such cases the partnership can be directed to change its name by the Secretary of State who has statutory powers to do so.

It is the best interest of a partnership to ensure that the name chosen is sufficiently different from a currently registered one so that it can avoid any confusion and the possibility that...

• Someone will raise an objection to the name
• They are not confused with another partnership with a poor trading record
• A ‘passing off’ action is brought against them in civil law

Deed of Partnership

Although not a legal requirement it is advisable to have a written deed of partnership which is a legally binding agreement between the partners that are setting up in business.
The deed will describe what rights and duties the partners will have and how the partnership is to be run and will help avoid any misunderstandings or disputes in the future which may have costly legal consequences.
If members do not have a deed they will be governed by the terms set out in the Partnership Act 1890 which will not offer solutions to many of the problems which can be encountered and may not suit the way that the partnership wishes to operate.
As it is a legal document, the deed of partnership should be drawn up by a solicitor in consultation with the partners.

LLP Requirements

• Complete and sign an incorporation document (Form LLP2) and send to companies house with the incorporation fee (Or get your advisor to do it for you)
• Receive a certificate of incorporation from companies house wich should be displayed inside the registered office.
• Contact HMRC on formation
• Set up a deed of partnerhip (recommended)
• You must clearly display the LLP name outside its office and all places of business
• Clearly display the LLP name and the registered office on all business stationery (Letter heads, order forms, invoices etc)
• Each year a set of accounts need to be filed at companies house
• An annual return should be completed and filed with companies house to ensure that the filed records are up to date
• Companies house should be informed of any changes to the membership, the personal details of the members and the address of the registered office.
• Companies house should also be informed of any change in the name of the LLP. This can be done on form LLP3 and should be accompanied by the relevant fee (currently £10) or it can be done on the same day for a fee of £50.

Taxation of a Limited Liability Partnership

Unlike a limited company profits earnt are shared between the individual members in proportion to their agreed percentages and it is the individuals who are responsible for paying the income tax on these profits via the partnership pages of their self assessment return.

Self employed partners are responsible for paying their own national insurance and therefore must be registered as self employed with HMRC.
Companies can also be members of a LLP and if so they will pay corporation tax on their share of the profits and therefore should show these details on the CT600 return.

Where a LLP has (or has a reasonable expectation of having) a turnover in excess of £60,000 per annum it will need to register with HMRC for VAT.

LLP’s that have employees must deduct and pay over income tax and national insurance which means operating a PAYE scheme and registering with HMRC.

When the LLP is set up it should notify HMRC that the business exists. This will then mean that the LLP can be sent a partnership return on which the income and expenditure for the year can be recorded and a statement showing how the profits/losses are split.

We can setup an LLP on your behalf and provide you with all necessary guidance. Please call us on 01384 468320.

Edmund house, 27 St. James's Road, Dudley, West Midlands, DY1 3JD