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What is a Limited Liability Partnership (LLP)?
A Limited Liability Partnership (LLP) is a popular business structure for organisations with two or more partners, offering a blend of partnership flexibility and limited liability protection. The key aspect of an LLP is that each partner has limited personal liability for the debts or claims of the partnership, therefore, partners of an LLP aren’t held responsible for the acts of other partners. This legal business structure is often suited to professional firms such as solicitors, accountants, architects, or consultants
The main difference between an LLP and a limited company is that an LLP has the organisational flexibility of a partnership and is taxed as a partnership. Partners are only liable up to the amount they invest, along with any personal guarantees they have made. LLPs are incorporated at Companies House and are only available to businesses operating for profit.
LLP Advantages:
Limited Liability – Each partner’s personal assets are protected from the business’s debts and liabilities.
Control Over Profits – LLPs have no shareholders, so members retain full control over profits, appealing to self-employed professionals.
Flexibility – Partners can manage the business directly, unlike in a corporation where management and ownership are separate. This allows for flexible profit sharing without triggering tax charges, even when adding new members or adjusting equity interests.
Tax Advantages – LLPs don’t pay corporation tax – profits are taxed personally by each partner. This can reduce costs on National Insurance and benefits in kind. Partners can flexibly split income between salary and profit share to optimise tax based on their personal tax rates.
Professional Credibility – Being registered with Companies House offers the LLP business credibility and professional reputation. As a corporate body with strict registration and disclosure rules, it is more trusted by clients, lenders, and suppliers than a general partnership or sole trader. This added credibility can be especially beneficial when pursuing government contracts, building a strong brand, or attracting clients and investors.
Name Protection – Registering an LLP at Companies House legally protects the partnership name, preventing other LLPs or companies from using the same or a similar name. This level of name protection is not available to general partnerships or sole traders.
LLP Disadvantages:
Public Disclosure – LLPs must submit accounts, including individual partners’ earnings, which become part of the public record, offering little privacy.
Dependency on Members – An LLP must have at least two members. If one member leaves, the partnership may need to be dissolved and re-registered.
Administrative Requirements – Incorporating an LLP is more complex and costly than a standard partnership, with more accounting and reporting requirements.
Tax Drawbacks– Although there are some tax benefits, there are also some tax disadvantages. LLPs are generally less tax efficient than limited companies. All profits are taxed as personal income in the year they are earned, whether or not they are withdrawn, offering little flexibility to retain profits for future use. Additionally, LLPs are not eligible for certain tax reliefs like R&D tax credits, making them less suitable for businesses planning significant investment in research and development.
We’re Here to Help
Thinking of setting up an LLP or exploring if it’s the right structure for your business? Our team of experienced advisers can help you understand the benefits, responsibilities, and steps involved. Get in touch today to discuss how we can support you on your business journey. Contact us on 01904 655202, or email enquiries@hghyork.co.uk.
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