Limited Liability Partnerships - FAQs
Below is a list of frequently asked questions which concern the process of setting up and running a limited liability partnership. If you have any other specific questions, please contact us
- What is a limited liability partnership?
- Is there more than one type of partnership?
- What are the advantages of trading as a limited liability partnership?
- Who can set up a limited liability partnership?
- What information do I need to set up a limited liability partnership?
- Choosing a name for my limited liability partnership
- What is a Registered Office?
- How can I get a Registered Office?
- What is the difference between members and designated members?
- Can anyone be a designated member?
- What is a deed of partnership?
- What is Companies House?
- What is a Certificate of Incorporation?
- What kind of accounts and records must a limited liability partnership maintain?
- Do I need to return any documents annually?
- Do I have to register for VAT?
- What about Income Tax and Corporation Tax?
- Where can I find more information about setting up a new limited liability partnership?
What is a limited liability partnership?
A limited liability partnership or LLP is a separate legal entity with limited liability.
An LLP can be set up by any 'two or more persons associated for carrying on a lawful business with a view to profit'. In other words, an LLP is not available to charities or for other non-profit-making activities. A 'person' includes individuals and companies.
An LLP has members (partners) but no directors or shareholders. Members of an LLP have limited liability, unlike sole traders and members of ordinary partnerships, the LLP is responsible for any debts rather than its members and any debts must be met from its assets. The liability of each member is limited to the amount they have contributed to the assets and to any personal guarantees they have given to raise finance.
Members usually share the responsibilities of running the LLP and share the profits that it makes. The rights and responsibilities of members are normally defined through a partnership agreement or 'Deed of Partnership'.
An LLP also has the tax status and complete organisational flexibility of an ordinary partnership. This means it can adopt whatever internal structure it likes without requiring a Memorandum or Articles of Association, or needing to hold board or general meetings. It also means that any profit-sharing arrangements, decision-making structure and other internal rules remain private between the members.
An LLP has unlimited capacity which means that third parties need not be concerned about any restrictions on its activities.
Although it has no share capital, an LLP is similar to a limited company and has to meet many of the same requirements. It can own property, employ people and enter into contractual obligations. It must also deliver an annual return and audited accounts to Companies House.
With regard to legislation, an LLP must comply with the Limited Liability Partnership Regulations 2001, and with certain conditions of the Companies Act 2006.
This type of partnership finds favour with lawyers, accountants and other professionals, LLPs are usually set up where their flexibility or tax status may be more beneficial than that of a private limited company.
Is there more than one type of partnership?
There are two types of partnership - an ordinary partnership and a limited liability partnership (LLP) .
The difference between an LLP and an ordinary partnership is that members of an LLP have reduced personal responsibility for business debts. It is the LLP that is responsible for any debts, not its members.
You can obtain a standard non-limited partnership agreement from this link.
What are the advantages of trading as a limited liability partnership?
The benefits of trading as an LLP are:limited liability. This protects the personal assets of the members should the LLP run into financial difficulties.
Organisational flexibility and tax status are the other advantages.
Many of the costs and administrative requirements associated with running an LLP are similar to those of a sole trader, ordinary partnership or private limited company. As it is a separate legal business entity, an LLP is perceived to be a more preferential option than sole trader and is popular especially with suppliers and creditors.
Who can set up a limited liability partnership?
Any individual of any nationality may register a limited liability partnership subject to the following conditions:
- They are not an undischarged bankrupt
- They have not been restrained by court order
- They are not subject to UK government restrictions
What information do I need to set up a limited liability partnership?
To set up a limited liability partnership through Company Wizard, you will need the following information:
- A unique name for your Limited Liability Partnership. Ending in LLP, e.g. MY NEW COMPANY LLP.
- Details of where the Registered Office is situated: in England, Scotland or Wales
- The Registered Office address
- The name, full address and date of birth for each Member: with a minimum of two designated members at all times
- An LLP Deed of Partnership
Choosing a name for my limited liability partnership
The name you choose must not already be registered by another LLP or company. You can find this out for free through our free Company Incorporation Wizard search facility .
The name most not be deemed offensive, or be associated with the government or local government, or include the abbreviation SE. There are also certain sensitive words which must be avoided.
The name you choose must end with the words Limited Liability Partnership or their abbreviation (LLP) or Welsh equivalent.
For clarification, please refer to the Companies House guidance on Limited Liability Partnership Formation and Names - GBLLP1.
What is a Registered Office?
The registered office is the official address where all statutory documents from Companies House will be sent. This address will appear on the public records. A PO Box can be used provided the full address is given, including the postcode, and it is validated by the Royal Mail.
How can I get a registered office?
If you do not have an address in the UK or you work from home and would prefer not to have your residential address on the public record, you may like to consider our Registered Office Address facility.
For £79 per annum we can provide a London based address as your registered office. Any statutory mail (from HMRC and Companies House) that is sent to this address can be forwarded to your nominated location.
What is the difference between a member and a designated member?
Members usually share the responsibilities of running the business and share the profits that it makes. The rights and responsibilities of members should be defined through a partnership agreement or 'Deed of Partnership'.
Members can become designated members with the agreement of the other members. As well as the same rights, responsibilities and duties dictated by the Deed of Partnership, designated members hold additional legal responsibilities. These responsibilities are similar to those normally be carried out by a company director or secretary, including:
- appointing an auditor where necessary
- signing the accounts (on behalf of the members) and filing them with Companies House
- preparing, signing and delivering an annual return to Companies House
- notifying Companies House of any changes to their members names and residential addresses, or change to the registered office address, or name of the limited liability partnership
- acting on behalf of the limited liability partnership if it is wound up and dissolved
Can anyone be a designated member?
Every limited liability partnership must have at least two designated members - whether individuals or companies - who must be formally appointed.
If there are less than two designated members, every member is deemed by law to be a designated member.
An LLP will lose the benefits of limited liability if membership falls to only one member and the LLP carries on business for more than 6 months.
What is a Deed of Partnership?
A Deed of Partnership (or partnership agreement) is a legally binding agreement between all the members. It usually sets out:
- the business name, address and the type of business
- details of each member
- the amount of capital that each member is contributing to the business
- how profits or losses will be shared between members, and whether any members will be paid a salary
- working arrangements, such as who does what tasks, how much time each member should contribute to the business, what type of decisions need collective agreement between the members
- changes to the partnership, such as how new members can be appointed and what happens if a member dies or wishes to leave
Whilst a Deed of Partnership is not a mandatory requirement, it can help to avoid any misunderstandings or disputes between members. You can obtain more information on our partnership agreement within our LLP Company Formation Guide.
What is Companies House?
Companies House is the Government agency responsible for registering all limited liability partnerships in the UK. It is also responsible for storing corporate information on these businesses, and making this information available for public view.
What is a Certificate of Incorporation?
This is an official document issued by the Registrar of Companies House upon successful incorporation of a limited liability partnership. It states the limited liability partnership number, name and date of incorporation.
What kind of accounts and records must a limited liability partnership maintain?
All limited liability partnerships are required by law to keep a full record of income, expenditure, assets, and liabilities, as well as details of the membership. These records must be kept safe as they will assist you in attending to your duty of returning the annual return and accounts.
Do I need to return any documents annually?
Every LLP and each individual member must make self-assessment tax returns every year to HM Revenue & Customs (HMRC). For individual members this will be in the form of a personal tax return. For the LLP itself, it will be a partnership tax return which, as well as showing the income and expenditure for the tax year, will include a partnership statement showing how any profits and losses have been divided amongst the members.
You must also file a number of documents with Companies House following your Accounting Reference Date (ARD). This date is usually the last day of the month your LLP was incorporated and occurs each year; it is the date that your financial year ends where the accounts are to be made up to.
The following documents must be delivered:
- A profit and loss account
- A balance sheet signed by a designated member
- An auditors report signed by the auditor (unless exempt)
- Notes to the accounts
- Group accounts (if appropriate)
Where eligible, LLPs may prepare and file abbreviated accounts. Certain LLPs with a turnover of less than £5.6 million and assets of less than £2.8 million can claim exemption from audit.
LLPs normally have 10 months from the ARD (or 9 months if the period starts on or after 6 April 2008) to return the above documentation to Companies House.
If you are filing your first set of accounts and they cover a period of more than 12 months, they must be delivered within 22 months of the date of incorporation (or 21 months if the financial period starts on or after 6 April 2008) or 3 months from the ARD, whichever is longer.
Every LLP must also deliver an annual return to Companies House at least once every 12 months. You have 28 days from the date to which the return is 'made up' to do this.
For clarification, please refer to the Companies House guidance on Limited Liability Partnership - Administration and Management - GBLLP2.
Do I have to register for VAT?
As a limited liability partnership you are legally obliged by HM Customs & Excise to pay VAT if the taxable annual turnover exceeds the current threshold of £70,000, or you believe that it will exceed this limit in the next 30 days. Remember, not all products and services are subject to VAT and in some cases different rates may apply.
What about Income Tax and Corporation Tax?
Any profits of an LLP are shared amongst members. Individual members are liable for income tax on these profits, not the LLP. Members should register with HM Revenue & Customs as self-employed and must include details of any profits they receive on their individual self-assessment tax returns each year. They are also responsible for paying their own National Insurance contributions (NICs).
If your LLP has employees, you must collect and pay income tax and NICs from them through a PAYE (Pay As You Earn) system.
Whilst LLPs don't have to pay corporation tax, any members that are companies (rather than individuals) will have to pay corporation tax on their profits. Company members should include details of profits on the self-assessment return for corporation tax.
Where can I find more information about setting up a new limited liability partnership?
We have put together an online guide to help you setup a Limited Liability Partnership. From here you can access all the required forms and draft your own Partnership agreement.
Click here for our LLP Company Formation Guide
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