Are you looking for a new business structure? If so, you may want to consider a Limited Liability Partnership.
In this blog post, we will discuss what a Limited Liability Partnership is, the benefits of using one, and how to set one up.
Let’s get started!
What is a Limited Liability Partnership
A limited liability partnership, or LLP, is a business structure that combines the features of both a corporation and a partnership. Like a corporation, an LLP has limited liability, which means that the partners are not personally liable for the debts and liabilities of the business.
However, like a partnership, an LLP is a “pass-through” entity, meaning that the business itself is not taxed on its income; instead, the partners are taxed on their share of the profits.
Benefits of Using an LLP
There are several benefits to using an LLP as your business structure:
1. Limited Liability
As we mentioned above, the biggest benefit of an LLP is that the partners have limited liability. This means that they are not personally liable for the debts and liabilities of the business. This protection is very important, and can give peace of mind to the partners in an LLP.
2. Pass-Through Taxation
Another big benefit of an LLP is that it is a “pass-through” entity, which means that the business itself is not taxed on its income.
Instead, the partners are taxed on their share of the profits. This can save the LLP a significant amount of money in taxes.
3. Flexibility
LLPs also have a lot of flexibility in terms of how they are governed.
Unlike corporations, which have to follow strict rules and regulations, LLPs can be run however the partners see fit. This flexibility can make LLPs a good choice for businesses that want to have more control over their affairs.
Rules and Regulations for a Limited Liability Partnership
Now that we’ve discussed the benefits of an LLP, let’s take a look at some of the rules and regulations that apply to them. First and foremost, LLPs must have two or more partners. Each partner must contribute a minimum of £2,000 to the business, and there is no maximum limit. Partners can be individuals, corporations, or other LLPs.
As stated in the Limited Liability Partnerships Act 2000 (PM192000), all LLPs are restricted in how much of the LLP’s trading losses members can set against other income or gains.
LLPs must also file a partnership agreement with the place in which they are formed. This agreement must outline the partners’ rights and responsibilities, as well as the business’s purpose and management structure.
Another regulation that LLPs must follow is the requirement to maintain separate bank accounts and financial records. This helps to ensure that the partners’ personal assets are protected in the event that the business is sued or incurs debt.
How Do You Set Up a Limited Liability Partnership?
If you’re interested in setting up an LLP in the UK,
1.Choose a Name
It’s important to choose a name for your LLP that is unique and not already in use by another business. You can check to see if your chosen name is available by searching the Companies House Register.
Your company name cannot be the same, or too similar to another registered business.
Your company name needs to end with either ‘Limited Liability Partnership’ or ‘LLP’. If your LLP is registered in Wales, you can use the Welsh equivalents.
2. Registered Address
All LLPs must have a registered address in England, Wales or Scotland. This is the address that will be used on all official correspondence and documents, so it’s important to choose an address that is suitable for your business.
Anytime you use a third party agent to manage your mail, confirm that their service always sends your mail to the registered office address on file.
Your LLP’s registered office address:
– Must be a physical location
– In the same country as your LLP is registered (e.g., an LLP registered in Scotland needs a Scottish address)
– Can use a PO Box, but you must also include the physical address and postal code after
Your home address can be used; this will be made available to the public.
3. Register your Limited Liability Partnership
You’ll need to register your LLP with Companies House. You can do this online, by post or through an authorised software provider.
To register online, you’ll need:
- The company name and number
- The registered office address
- The names, addresses and dates of birth of the designated members
- The amount each designated member has contributed to the LLP
Upon successful registration of your LLP, you will be sent a certificate of incorporation.
Register Online: You can register your LLP electronically using third-party software. Prices vary depending on the software you use. If you want your LLP registration to be processed within 24 hours, you can do so by applying before 3pm and paying a higher fee.
Register by Post: To register your limited liability partnership by post, download and fill out the application to register a limited liability partnership.
Through Agent: A formation agent can also help you establish your LLP. You pay depending on the agent you use. Formation agents typically charge a fee for their services, which can range from £50 to £500. You may also have to pay government fees, which vary depending on the country in which you form your LLP.
4. Members’ Responsibilities
After you’ve registered your LLP, it’s important to understand the responsibilities of being a member.
Members must:
– Act in accordance with the LLP agreement
– Promote the success of the LLP
– Exercise reasonable care, skill and diligence
– Not engage in any activity that could harm the LLP
– Not act in a way that would make it unlawful for the LLP to carry on business
– Declare any interest in a proposed transaction or arrangement with the LLP
5. Report All Changes
After your LLP is registered, you’ll need to report any changes to Companies House.
For example, you’ll need to notify Companies House if:
- A member joins or leaves the LLP
- The LLP agreement is changed
- The registered office address is changed
- The name of the LLP is changed
You can update these changes online, by post or through an authorised software provider.
How to Protect Yourself as an Owner of LLP?
There are several ways you can protect yourself as an owner of a limited liability partnership:
1. Get Insurance
Insurance can help protect your LLP from costly lawsuits. You may want to consider directors and officers liability insurance, which can help cover the costs of defending yourself against wrongful accusations of wrongfully taking company money or property.
2. Have an LLP agreement
An LLP agreement is a contract between the members of the LLP that sets out the rules and regulations for running the business. This can help prevent disagreements between members down the road.
3. Be Mindful of your Actions
As a member of an LLP, you have a responsibility to act in the best interests of the business. This means avoiding any actions that could harm the LLP, such as engaging in illegal activity or taking company money for personal gain.
By following these tips, you can help protect yourself and your business in the event that something goes wrong.
Can Partners in LLP Borrow Money from the Partnership?
Yes, partners in a limited liability partnership can borrow money from the partnership. However, there are some restrictions on how this can be done.
For example, the borrowing must be for a valid business purpose and the terms of the loan must be fair to all parties involved. Additionally, the partnership must be able to repay the loan if it is called in.
The Future of LLP
The future of limited liability partnerships looks bright. They offer a number of advantages over traditional partnerships, including limited liability for members and the ability to raise capital more easily. Additionally, they are becoming increasingly popular with entrepreneurs and small business owners.
As the global economy continues to grow, limited liability partnerships are likely to continue to gain in popularity. This is because they offer a number of advantages that can help businesses thrive in a competitive marketplace.
If you are thinking about starting a business, an LLP may be the right choice for you.
To learn more, get in touch with us today.
