A limited liability partnership (LLP) is an alternative corporate business vehicle, which gives the benefits of limited liability but also allows its members the flexibility of organising their internal structure as a traditional partnership.

It differs from a traditional partnership in that it is a legal entity separate from its members. It has 'members' rather than partners and must be formally incorporated to exist. As a legal entity it is subject to some parts of the Companies Act 1985.

Advantages

  • A LLP provides more flexibility than traditional partnerships. Existing independently of the forming members, it has the legal capacity to do everything a person or company could do, such as opening bank accounts, entering into contracts and owning property.
  • A LLP gives the additional advantage of limiting your personal liability in the way that a limited company does not.

Disadvantages

  • A LLP has to produce and publish financial accounts with a similar level of detail to a similar sized limited company and submit accounts and an annual return to the Registrar of Companies each year. This publication requirement is far more demanding than the position for normal partnerships and specific accounting rules may lead to different profits from those of a normal partnership.

Questions to ask yourself

  • Are you intending to freelance in partnership with someone else for the foreseeable future? If so, the same principle applies as for sole traders. Check with your accountant whether you would make any significant savings as a partnership versus the limited company route. Once you know the answer, you can weigh up the savings against the disadvantages.

How do you set up a LLP?

As a member of a partnership you need to register as self-employed, which can be done online via the HMRC website.

To set up a LLP you also need to incorporate the partnership – you can find out more here. Alternatively you can appoint an accountant as your agent – they can advise you on the implications and handle the set-up process for you.

What are the legal requirements?

Whilst it is not a legal necessary, every LLP should have a thorough and comprehensive members agreement in place and needs to have taken legal/professional advice about the issues that should be covered by this agreement.

At least two members of the LLP must be 'designated members' who perform duties similar to those of a company secretary, for example by signing off the LLP’s accounts.

LLPs are similar to companies in the respect that they are required to provide financial information equivalent to that of companies, including the filing of annual accounts. They must also notify any changes to the LLP membership, members’ names, members' addresses and the registered office.

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