An LLP shares many of the features of a partnership, but also offers its members limited liability from any financial problems the business may face in the future.
Members of an LLP share much with limited company owners in terms of their legal and statutory obligations, however they are taxed in the same way as members of a partnership.
Members of a limited liability partnership can be individuals or existing businesses, although there must be at least two members.
You will need to choose a name for your business. Firstly, you should check that your proposed name is available (you can check existing names via Companies House) and make sure does not include any ‘sensitive’ or ‘restricted’ terms. More information on these steps can be found in this Companies House guidance.
You, or a formations agent, should complete Form LL IN01 (online version) and submit it electronically or in paper format together with the appropriate fee. As of April 2011, the fee is currently £40 for a standard registration (£100 for a same day service), and £14 if the registration is submitted electronically (£30 for the same day service).
The LL IN01 form will include details such as your company name, the proposed registered address, details about the founding members, and a statement of compliance.
Once you have completed the registration process, you will received a Certificate of Incorporation from Companies House.
Our company registration partner, Duport, can set up an LLP for you online. Simply click here for more details.
Running an LLP
When you set up in business, the rights and responsibilities of all members would typically be outlined in a Deed of Partnership.
This is a legally binding agreement which also outlines issues such as what would happen if one or more members of the LLP wanted to leave the business at some time in the future, how profits will be shared, how much capital each member has or will inject into the business, and how the members will contribute work-wise to the business.
Creating a deed of partnership is highly recommended, as problems which arise further down the line may be easier to deal with if all members have agreed fundamental issues to do with the running of the business beforehand.
In the absence of such a document, LLP’s are governed by the Limited Liability Partnerships Act 2000
The LLP must also select at least two designated members who are responsible with dealing with the legal and statutory obligations of the LLP, including dealing with Companies House and ensuring that its annual Partnership Tax Return is completed accurately and on time.
The designated members would also be responsible for acting on behalf of the business if it is dissolved.
LLP’s and taxation
Like a standard partnership, the profits of an LLP are split between its members. Each member is responsible for paying tax on these profits, and not the business.
As individual members will typically be self employed for tax purposes, they will be taxed via the self assessment process and have to be National Insurance Contributions on their earnings.
Members should also register as self employed with HMRC if they have not done so already.
If a member of the business is a limited company, it will have to pay corporation tax on any profits it receives from the limited liability partnership.
As with any other business, if the LLP is expected to turnover £77,000 or more in the following 12 months (2012/13 tax year), it must be registered for VAT.
Even if the LLP is unlikely to reach this threshold, it may register for VAT regardless, as this may provide a more professional image in certain professions.
If the business has employees, it will also be responsible for operating a payroll, and collecting income tax and NICs from its staff.
The designated member of the LLP will ultimately be responsible for registering the business with the tax authorities (for VAT, NICs, and the PAYE scheme), and ensuring that the Partnership Tax Return is completed accurately and on time – even though this is likely to be completed by an independent accountant.
Visit Companies House for a complete guide to setting up and running an LLP – here.
Our company registration partner can set up an LLP for you. Simply click here.