Limited Liability Partnership
A Limited Liability Partnership or LLP as the acronym expresses is a legal partnership providing limited liability to the partners in the business.
In this legal structure, the limits of liability for each partner are capped to the amount each has invested into the business. These limits ensure that their personal assets are safe if the business faced litigation, and the insurance could not cover the losses.
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 traditional partnership is a business set up by two or more people where they share the risks in the business. An LLP limits that risk to any investment put into the company or personal guarantees made by the partners when upon formation. The limits change if they need to raise additional capital finance.
Forming a Limited Liability Partnership
An LLP, like normal partnerships, is formed by at least two people for carrying out a business and is incorporated using form LLP2. That person can be an individual or a company.
At least two of the partners need to be legally designated as "members" and all partners need to be registered to be self-employed. (check you complete this within three months of becoming self-employed, or you'll 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.
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 LLP2
To form an LLP, you're required to complete form LLP2 and 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 adds their service charge on top of this. Your agent will complete all the paperwork for you and have the service normally completed within the same day.
Accounting for LLPs
Accounts need to filed at Companies House in a similar manner to limited companies. 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 personal self-assessment tax forms each year.
Profits are split equally amongst the partners unless otherwise stated in any partnership agreement that has been signed. Income tax and National Insurance gets 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 for 2015/6 is £82,000 turnover (i.e., you'll need to register if you believe your sales will be more than £82,000 in the next 12 months).