Also known as an LLP, limited liability partnerships are a type of separate legal business entity with benefits of a limited liability. However, members of an LLP are allowed to form an internal structure that resembles a traditional partnership. As far as the law is concerned, these partnerships are referred to as ?bodies corporate? and are supposed to follow the company law. In terms of tax, they are generally treated as partnerships.
How Does an LLP Works?
It is easier to understand the workings of an LLP if we begin with general partnerships. A general partnership is two or more people working together to earn money. However, when partnerships are this informal, it is bound to create problems. For this purpose, partnerships are often converted into a limited liability company (LLC). An LLC features a set structure, which can often be a hindrance for professions that require customised structures. This is where the need for an LLP arises.
An LLP has a formal structure with a written agreement. It requires annual reporting as well; depending on the specific legal jurisdiction. Contrary to the working of a limited partnership, LLP allows all partners to manage the partnership. Shared management also results in shared liability. However, as the name of the partnership suggests, the liability is quite limited.
Advantages of Limited Liability Partnerships
An LLP has the following advantages:
An LLP is usually formed by professionals with detailed experience in a particular profession. This allows partners to conduct a smart business and reduce the cost of running it.? The liability is also limited due to legal protection. Any liability is associated directly with the partnership instead of any partner?s assets outside of it. The partnership will be the first target for any suit.
As compared to a limited liability company or limited partnerships, LLC provides a more flexible structure for conducting business. In limited partnerships, one partner is responsible for managing while others only have a financial interest. LLC allows customising the structure to make certain professions more profitable while the management is also shared among all partners.
In the UK, an LLP will not be charged with taxes despite being a separate legal entity. The tax will be taken from each partner separately assessing their UK tax liability.
An LLP can be formed by two or more people in the UK. The LLP is supposed to be registered under the Companies House. The aim of the partnership should be lawful business and earning profit.
In the UK, there must be at least two designated members for an LLP. These members must be responsible for the management of the LLP at all times. However, there is no limitation regarding the residence or nationality of the members.
In the UK, the act for an LLP does not require the members to have a written agreement. However, it is considered a good practice if the members enter into a written agreement. The agreement can have details such as nature of business, partner shares, duties of each member and more.
In conclusion, a UK LLP is a flexible business structure with reduced liability for each partner.