Trading Method - Limited Liability Partnerships (LLP)
A Limited Liability Partnership (LLP) is a relatively new trading vehicle which allows individuals to set up in partnership in the traditional sense of the word but which allows the security of ‘limited liability’ as is enjoyed in limited company structures. In an LLP structure the partnership becomes a distinct legal person separate from its members.
By becoming a distinct legal entity, there are company law requirements to fulfil, such as the need to file annual accounts.
Why LLP?
It is easier to join or leave an LLP than an ordinary partnership. This is because a partnership is automatically dissolved in a situation where a partner leaves. However, members of an LLP can join or leave at any time without the LLP being dissolved.
There are limited regulations imposed on an LLP - for example it does not have to hold board or general meetings or make decisions by way of resolution. An LLP has no requirement for items such as a memorandum or articles of association.
How do I set up an LLP?
An LLP can be set up through an accountancy firm, solicitor or formation agent. Although it is not a legal requirement, it is always recommended that every LLP should put in place a comprehensive members' (partnership) agreement.
The designated members will have similar responsibilities to Directors and the Company Secretary of a Personal Service Company (PSC). The members will control the activity of the business and will provide the capital for the business.
Partnerships already in existence can be transferred to a new LLP. However, the limitation of liability afforded by becoming an LLP will only be effected from the date of incorporation.
Taxation
An LLP itself is not taxed - instead the members are taxed on their shares of the LLP’s profits and gains (i.e. just as partners in a partnership are taxed).
In some cases this can mean that the LLP may be more tax efficient than a limited company, as the limited company itself will be subject to corporation tax as well as the individuals within it being taxed on any income they receive.
As a member of an LLP you are self employed and must register with HMRC within three months of becoming a member. You will be treated as self employed and will be taxed as such.