Limited Liability Partnership

A Limited Liability Partnership or LLP as the acronymn expresses is a legal partnership providing limited liability to the partners in the business.

The liability is limited to the amount each partner has invested in the business so that their personal assets are safe if the business was to be sued and insurance could not cover the losses.

Definition

A simple definition of a limited liability partnership is "a legal business entity partnership whereby the LLP is responsible for the debts of the business and not the partners"

A partnership is a business set up by 2 or more people where they share the risks in the business whereby a LLP limits that risk to any investment put into the company or any personal guarantees made by the partners when the business was formed or if they needed to raise additional capital finance at all.

Forming a Limited Liability Partnership

A LLP like normal partnerships can be formed by at least two people for carrying out a business and is incorporated using form LLP 2. That person can be an individual or a company.

At least 2 of the partners need to be designated as "members" and all partners need to be registered to be self employed (check that this is done within 3 months of becoming self employed or you will receive a fine of at least £100 from the inland revenue. See more on this and more tax issue in our self employed tax guide

Of course like any other form of partnership it's best if there's a partnership agreement drawn up beforehand (often called a deed of partnership). Consult a solicitor to develop this.

Incorporation Form LLP 2

To form a LLP you are required to complete form LLP2 and of course send off the appropriate registration fees to companies house. The form requires you enter the partners names addresses and date of birth, the registered office address and which of these are designated members.

There are many online incorporation agents that can handle this for you. The companies house fee is currently £20 and any agent will add their own service charge on top of this but they will complete all the paperwork for you and have the service completed within the same day (normally).

Accounting for LLPs

Accounts need to filed at companies house like limited companies and the time slot allowed has been reduced to 9 months from 10 months from the date the accounts are made up. As with limited companies a reminder from HMRC is sent out beforehand to remind you to submit accounts.

The members or partners are responsible for sending in their own self assessment tax forms each year.

Profits are split equally amongst the partners unless otherwise stated in any partership agreement that has been signed and income tax and national insurance is paid against these profits.

LLPs are still liable to register for VAT like anyone else if their sales turnover is set to be above a certain number in the next 12 months. The current limit from May 2009 is £68,000 turnover (ie: you need to register if you believe your sales will be more than £68,000 in the next 12 months).

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