Limited Liability Partnerships (LLPs) is a popular company format as it combines the protection of a limited company with the flexibility and tax advantages of a partnership. While the government has standard rules governing LLPs, it’s highly advisable to create your own LLP agreement.
This provides clarity and protection in the event of future disputes. Our team is very experienced with all areas of commercial law, including LLPs and can draft your own legally binding LLP agreement. We can also help with start-ups, including providing advice on whether an LLP is the right type of structure for your company.
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More information on LLPs
Have you considered a limited liability partnership for your business? Here are the pros and cons to an LLP and how they compare to a normal partnership.
In England, a business can be formed in many different ways with a variety of structures to choose from. A Limited Liability Partnership (LLP) is a type of hybrid set-up which combines some of the benefits of a partnership with other features of a limited company.
How is an LLP different?
Although the LLP may be a partnership, it has more in common with a limited liability company than a business partnership.
In a partnership, all liabilities fall to the partners. This means that their personal assets could be at risk if the business fails. The partnership itself is not a legally recognised entity so the liability is on the individuals in their personal capacity.
An LLP is different because the company is recognised legally as an entity in its own right. This allows it to assume liability for the company, thereby protecting the partners’ personal assets. Their liability only extends to their contribution towards the assets of the LLP. Their private assets cannot be seized to cover any debts of the company that may accrue.
It’s therefore possible to see that it’s not that the liability of the company is limited, but the extent to which the partners are personally liable which is limited.
Is an LLP right for my business?
While there are distinct advantages to the LLP structure, there are some drawbacks too. Similarly to a limited company, the accounts of an LLP will need to be filed with Companies House and they will be visible as a public document.
The accounting, filing and publishing requirements for an LLP are far more onerous compared to a regular partnership. Specific accounting practices may need to be followed which add an extra level of complexity to the returns.
It’s also important to understand that the profits of an LLP are not taxed like a company. In this way, the structure is more like a partnership as profits are treated as personal income. There is no way of retaining profits in the company until the following year.
Although LLPs offer an interesting solution which may be suitable for some, the lack of flexibility and enhanced auditing requirements may mean it’s not the best solution for all.
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