Creating a LLP, or Limited Liability Partnership, is just one of the options business owners are faced with when setting up a new company in the UK.
We’ve previously written all about setting up your Limited Company in the UK, which is the most common company structure for our customers, but it’s also important to explore all the options when starting a new business.
Let’s take a closer look at the some important things you need to know it comes to Limited Liability Partnerships in the UK.
What is an LLP?
If you’re already familiar with Limited Companies, you’ll know that they consist of directors, shareholders and guarantors.
A Limited Liability Partnership does not have any of these, but instead they simply have members or partners.
There’s no maximum number of partners required for a LLP but there must be a minimum of 2.
When it comes to tax, LLP’s are taxed as partnerships which means that the partners are responsible for their own tax affairs based on their individual business activity, profits, and/or losses etc.
Like Limited Companies, a Limited Liability Partnership also needs to be registered with Companies House.
Who is a Limited Liability Partnership For?
LLP’s are not specifically reserved for any one particular business however they are very popular amongst professionals who might otherwise normally operate as a partnership.
- Chartered Accountants
Typically, but not always, these professions operate with limited employees and work in partnership on a small sized practice. This is why they favour setting up a LLP.
What Are The Benefits of a LLP?
Without getting too technical about why setting up a Limited Liability Partnership might beneficial for you, we will make note of some of the more popular reasons why people might choose this type of structure for their business.
It’s very important, however, that you do your own research and speak to a qualified professional before acting on any advice you read here or anywhere else on the internet.
- Each member or partner of the LLP pays tax according to their own personal situation, rather than the overall performance of the LLP.
- LLP’s offer personal protection to its individual members so they are not responsible for the debt of the business.
- It’s much easier to add or remove new members into a LLP than it is compared to a Limited Company.
- Individuals of the LLP are not liable for any liability claims that may arise.
- Partners of the LLP don’t need to be UK residents, they can be located anywhere in the world.
- Overall, a LLP is very flexible when it comes to distributing profits to members. The LLP can also loan money to its members without having to declare profit first like a Limited Company would.
- An LLP can employ staff if required because it is a legal entity.
There may be many other reasons, that are not shown on this list, why setting up a LLP is advantageous.
What Are The Disadvantages of a LLP?
There’s many reasons why a particular business structure might not be the best for your individual circumstances. Here’s some reasons why a Limited Liability Partnership might not be the best option for you.
- With a Limited Company its possible to retain profits, which might have great advantages for your business, but this is not possible with a LLP where all profits are distributed to the partners.
- LLP’s might be less tax efficient as income is all considered personal income which attracts higher tax rates.
- A limited liability partnership requires at least 2 partners, so they are not suitable for individuals.
- Financial accounts must be submitted to Companies House which means that individual finances of the partners will be on public record. This is generally one of the main reasons why people choose not to establish a LLP.
Of course this is not an exhaustive list of disadvantages of a Limited Liability Partnership structure, but they are some of the more common key points that steer business owners away from a LLP.
Is a Limited Liability Partnership Different to a Traditional Partnership?
In short, yes. There are many differences between a LLP and a Traditional Partnership.
The most significant difference is that with a Traditional Partnership, any debt that the company incurs is the sole responsibility of the individuals in the partnership.
A Limited Liability Partnership offers some protection to partners in the case of company debt, similar to that of a Limited Company setup.
The Final Word on LLP’s
Here at Launchese we do offer LLP setup services, even though they are not the most popular business structure chosen by our customers.
There are many pros and cons to each company structure, so it’s important that you have a full understanding of your needs before making a decision.
Thanks for reading!