What is a Limited Liability Partnership?

A limited liability partnership, or LLP, is a hybrid business structure formed under the Limited Liability Partnerships Act 2000, in effect since 6 April 2001. It combines the flexible internal management of a traditional partnership with the limited liability protection of a company, and LLPs must also comply with the Limited Liability Partnership Regulations 2001 and the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009.

Key Takeaways

• An LLP combines the flexible internal management of a traditional partnership with the limited liability protection of a company.
• Unlike a standard partnership, an LLP is a separate legal entity, so it can enter contracts, own property, and be held responsible for its own debts.
• Members are generally only liable for what they've invested in the business, protecting personal assets from claims or another partner's negligence.
• An LLP needs at least two designated members, who take on extra legal responsibilities similar to a company director, such as filing accounts and confirmation statements.
• For tax purposes, an LLP is transparent: the entity itself doesn't pay Corporation Tax, and each member pays Income Tax and National Insurance on their own share of the profits.

How is an LLP Formed?

An LLP is formed by registering it with Companies House. You need at least two members, and the business must be run for profit, so non-profit or charitable organisations can't use this structure. Members put together a written agreement covering how the business operates: profit sharing, dispute resolution, and each member's responsibilities.

Members don't need to be UK residents, but the LLP's registered office must be UK-based. Designated members pay tax based on their share of the profits but aren't personally liable for the business's debts, which is why accountants, solicitors, surveyors, and other professionals often favour this structure over a standard limited company.

The steps to set one up:

• Have at least two designated members
• Choose a name
• Have a registered address
• Create an LLP agreement
• Register the LLP with Companies House

Naming Your LLP

Your name must end in "Limited Liability Partnership" or "LLP," and can't be "the same as" or "too like" another registered company's name.

"Same as" names are ones where the only difference from an existing name is punctuation, a similar-sounding word, or a generic term like "company" or "co." For example, "Alluring Scents Ltd" and "Alluring Scents UK" would be treated as the same. You can only register one if your LLP is part of the same group as the existing name-holder, or you have written confirmation they don't object.

"Too like" names can be challenged if another company complains that your name is confusingly similar to theirs, even if it isn't an exact "same as" match.

LLPs vs Limited Companies

An LLP is neither a traditional partnership nor a standard company; it sits between the two. It's similar to a limited company in that it's a separate legal entity, must be incorporated with Companies House, and must file a Confirmation Statement and Annual Accounts every year.

It differs from a limited company in a few ways: it's solely for profit-making businesses, it needs an LLP agreement setting out how it's run, it needs at least two designated members responsible for statutory filings, its structure is more flexible and can be shaped by its members, and it doesn't pay Corporation Tax.

Setting Up Your LLP

Registration can be done fully online. Our LLP formation package includes registration with Companies House, a free LLP agreement, and your certificate of incorporation.

FAQs

What is the main difference between an LLP and a traditional partnership?

An LLP is a separate legal entity, so members have limited liability and their personal assets are protected. In a traditional partnership, partners are personally responsible for business debts and each other's actions.

How many members do I need to start an LLP?

At least two at all times, individuals or corporate bodies. If membership drops below two for more than six months, the remaining member can lose their limited liability protection.

What are a designated member's responsibilities?

Extra legal duties similar to a company director: appointing an auditor, signing annual accounts, filing the confirmation statement, and notifying Companies House of changes like a new registered office or new members.

Is an LLP taxed the same way as a limited company?

No. An LLP is tax transparent, so it doesn't pay Corporation Tax itself. Profits are shared among members, who each pay Income Tax and National Insurance on their share.

Do I need a written partnership agreement?

It's not a legal requirement, but it's strongly recommended. Without one, the LLP defaults to standard provisions in the Limited Liability Partnerships Act 2000, which may not suit how you actually want to run the business.

Can an LLP be used for any type of business?

It must be for profit. It's common among professional services like law firms and accountants, but any group of two or more can use it for a profit-making venture. Non-profits should look at a structure like a Company Limited by Guarantee instead.

What information about an LLP is public?

Registered office address, members' names and service addresses, and annual accounts are all on the public register. The LLP agreement itself stays private.

This article is for general information only and does not constitute legal or tax advice. LLP requirements can change, so it's worth checking current guidance on GOV.UK or Companies House before relying on the details above.