Limited Liability Partnership
What is a General Partnership?
Generally, the word "partnership" usually refers to general partnerships. A general partnership is a business that has more than one owner and that has not filed papers with the state to create a specific entity such as a corporation or limited liability company (LLC).
Limited by shares
Companies limited by shares account for the majority of private companies registered in the UK. This company structure is mostly incorporated as the company exists as a separate legal entity from the individual owner. This means the owners have limited financial liability, so their personal finances are protected if the company encounters financial problems. Limited liability is a major benefit over the sole trader structure whereby the sole trader is liable for all.
A limited partnership consists of:
- one or more people (called general partners), who are liable for all debts and obligations of the firm
- one or more people (called limited partners), who contribute a sum or sums of money as capital, or property valued at a stated amount
Generally, limited partners are not liable for the debts and obligations of the firm beyond the amount contributed.
A Limited Liability Partnership (LLP) is an alternative type of business structure which is popular with professionals who normally operate as a partnership, such as solicitors, doctors, architects. but whose members require limited liability. The key differences between an LLP and a limited company are:
- An LLP does not have any directors, shareholders or guarantors; instead, it has members, who are more commonly referred to as 'partners'. There must be at least 2 members to register an LLP, but there is no upper limited to the number of members permitted.
- LLPs are governed by the Limited Liability Partnership Act 2000 and The Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, rather than the Companies Act 2006.
- LLPs are taxed as partnerships, meaning they are not liable for corporation tax but each member is personally responsible for paying Income Tax and National Insurance on their individual profit.
- LLP profits are shared between all members.
- The method of taxation for LLPs allows for an increased level of tax transparency, in addition to and allowing members to remain separate.
- You can appoint another company (termed as a ‘corporate body’) to be a member of an LLP. Any corporate members would be liable for corporation tax rather than Income Tax.
- LLP members can be based anywhere in the world - there is no requirement for members to be UK residents.