Limited Liability Partnerships
The Pros and Cons
The following guide looks at some of the benefits and disadvantages of running your business as an LLP registered in the UK
Accounting & Tax
2 or More Partners
Limited Liability Partnership – LLP formations
Limited Liability Partnerships are often referred to in their abbreviated form as LLP’s. LLP’s were introduced in 2000 by the Partnerships Act 2000 to provide partnerships with the limited liability previously only available to companies. The LLP formation is popular when a ‘professional partnership’ would like the benefit of protected liability. This is particularly suited to accountants, solicitors, architects, consultants, surveyors and other fields of expertise where a partnership is preferred to a limited company. LLP’s may be suitable when the partners are members of an institute or individual earnings are clearly defined and not simply added to one pot and distributed by dividend. Within an LLP the earnings of the members is normally seen as personal income.
There are numerous benefits to be had from trading through an LLP -
- Limited liability protects the member’s personal assets from the liabilities of the business. LLP’s are a separate legal entity to the members.
- Flexibility. The operation of the partnership and distribution of profits is determined by written agreement between the members. This may allow for greater flexibility in the management of the business.
- The LLP is deemed to be a legal person. It can buy, rent, lease, own property, employ staff, enter into contracts, and be held accountable if necessary.
- Corporate ownership. LLP’s can appoint two companies as members of the LLP. In an LTD company at least one director must be a real person.
- Designate and non-designate members. You can operate the LLP with different levels of membership.
- Protecting the partnership name. By registering the LLP at Companies House you prevent another partnership or company from registering the same name.
This is not an exhaustive list but covers some of the key benefits on an LLP.
As with all formats of business there will be disadvantages as well as advantages. The following may be considered disadvantageous in some cases.
- Public disclosure is the main disadvantage of an LLP. Financial accounts have to be submitted to Companies House for the public record. The accounts may declare income of the members which they may not wish to be made public.
- Income is personal income and is taxed accordingly. There may be tax advantages in registering as a company, but this will depend on your personal circumstances.
- Profit can not be retained in the same way as a company limited by shares. This means all earned profit is effectively distributed with no flexibility to hold over profit to a future tax year.
- An LLP must have at least two members. If one member chooses to leave the partnership the LLP may have to be dissolved.
- Residential addresses were historically recorded at Companies House. Whilst the use of ‘service addresses’ now allows for home addresses to be kept out of public view, any address previously supplied to Companies House is still part of the public record unless you pay for the records to be suppressed. For many businesses this is not a problem. However, there are some examples where this may not be desired. Consider solicitors and partners of law firms that may not want their home address so freely available if their work involves sensitive cases.
This is not an exhaustive list but covers some of the key issues that some may feel are disadvantageous for an LLP.
An LLP can be registered with any name its members choose as long as it is available at Companies House. It is typical to see the member’s names included within the LLP name but this is not a requirement. For example, an LLP may be registered as SMITH, JONES & DAVIES LLP, or it may use a descriptive name like LEGAL ADVISORS LLP or something freestanding like INDIVIEW SERVICES LLP. (These names are examples and there is no connection to any company registered with Companies House at present or in the future).
At the time of registering the LLP the members must decide if they would like the name recorded at Companies House using “Limited Liability Partnership” in full or the “LLP” abbreviation. The LLP can still use either version post registration.