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Just4contractors.com > New to Contracting > Choosing the right business structure > Limited Liability Partnership
What about a Limited Liability Partnership?
A Limited Liability Partnership (LLP) is similar to a Limited Company, in that it is a legal entity in its own right.
It has members rather than partners and must be formally incorporated to exist. Its legal entity is separate from its members, thus it has the capacity to do everything that a limited company could do, such as open bank accounts, enter into contracts, and own property.
Any new or existing firm of two or more persons is albe to incorporate a Limited Liability Partnership. The designated members, who have a similar responsibility to a director, control the business. They provide the capital for the business.
The members are taxed on their respective shares of the LLP's profits and gains, just as partners in a partnership are taxed. An LLP has to produce and publish financial accounts and an annual return to the Registrar of Companies each year. They are also required to file certain documents at Companies House including details of members, their salaries and the LLP's annual accounts.
These documents are filed at Companies House and may be viewed by the general public.
So what are the advantages of a LLP?
The limited liability partnership may be more tax efficient than a limited company, because the limited company is taxed on its income and capital gains and the company's shareholders are taxed on distributions from the company to them, which may give rise to potential double taxation.
There is also a limitation of the members' liability, where the LLP would not be bound by the actions of a member, where that member had no authority to act on behalf of the LLP.
As a member of a LLP, you do not have National Insurance charges on the profit shares.
LLP has complete flexibility to the internal structure so there are no requirements for board or general meetings.
Compared to a partnership, it is easier to join or leave an LLP at any time without the LLP being dissolved.
As always there is a flip side, in that LLP's are relatively new so there is less legal certainty to them than for limited companies.
The financial accounts requirement is far more demanding than the position for normal partnership and specific accounting rules may lead to different profits from those of a normal partnership. The additional filing requirements may be viewed as a disadvantage.
See Also
Limited Company
Choosing the Right Accountant
Taxation
Partners - company formation
Recommended Links
Companies House - information on LLPs
It has members rather than partners and must be formally incorporated to exist. Its legal entity is separate from its members, thus it has the capacity to do everything that a limited company could do, such as open bank accounts, enter into contracts, and own property.
Any new or existing firm of two or more persons is albe to incorporate a Limited Liability Partnership. The designated members, who have a similar responsibility to a director, control the business. They provide the capital for the business.
The members are taxed on their respective shares of the LLP's profits and gains, just as partners in a partnership are taxed. An LLP has to produce and publish financial accounts and an annual return to the Registrar of Companies each year. They are also required to file certain documents at Companies House including details of members, their salaries and the LLP's annual accounts.
These documents are filed at Companies House and may be viewed by the general public.
So what are the advantages of a LLP?
The limited liability partnership may be more tax efficient than a limited company, because the limited company is taxed on its income and capital gains and the company's shareholders are taxed on distributions from the company to them, which may give rise to potential double taxation.
There is also a limitation of the members' liability, where the LLP would not be bound by the actions of a member, where that member had no authority to act on behalf of the LLP.
As a member of a LLP, you do not have National Insurance charges on the profit shares.
LLP has complete flexibility to the internal structure so there are no requirements for board or general meetings.
Compared to a partnership, it is easier to join or leave an LLP at any time without the LLP being dissolved.
As always there is a flip side, in that LLP's are relatively new so there is less legal certainty to them than for limited companies.
The financial accounts requirement is far more demanding than the position for normal partnership and specific accounting rules may lead to different profits from those of a normal partnership. The additional filing requirements may be viewed as a disadvantage.
See Also
Limited Company
Choosing the Right Accountant
Taxation
Partners - company formation
Recommended Links
Companies House - information on LLPs