Limited Liability Partnership Registration: A Handbook of LLPs

Learn the steps of a Limited Liability Partnership (LLP) registration. Discover essential tips and requirements for setting up an LLP effectively.
Limited Liability Partnership Registration: A Handbook of LLPs

Table of Content

Hey, there!
Let’s start with a question: Did you know, starting an LLP could be the best move for your UK entrepreneurial dreams? We are talking about the most popular and registered partnership structure: Limited Liability Partnership AKA LLP.

In this guide, we will elaborately discuss the limited liability partnership registration process, showing you exactly how to get your LLP up and running. An LLP is perfect for professionals seeking flexibility with a protective edge. Setting up one combines the freedom of partnership with the benefits of corporate liability protection.

By the end of this blog, you’ll be ready to launch your own venture with confidence and legal savvy. Ready to turn your business idea into a registered reality? Let’s get started and make it official!

Understanding LLP Company

An LLP or Limited Liability Partnership is a modern business structure. Introduced in 2001 under the LLP Act 2000, this popular business entity is specifically designed for professions traditionally operated as partnerships: law firms, accountancy firms, dental practices, etc.

Although an LLP has the flexibility of a general partnership in terms of management, profit distribution, and tax obligations, it is significantly different. How? Unlike a general partnership, an LLP offers each partner limited personal liability for the business’s debts and claims. This means while partners benefit from collaborating and achieving economies of scale, their financial risk is minimized, protecting individual assets from the partnership’s liabilities or other partners’ actions.

This makes LLPs an attractive option for professionals looking to safeguard their finances while enjoying cooperative business endeavors’ benefits.

LLP Examples

Imagine a law firm where a bunch of attorneys team up to offer their legal expertise. In this LLP setup, each partner chips in and shares the profits, but here’s the kicker—each lawyer’s personal assets are shielded from the firm’s debts and mess-ups. So, if one partner gets sued, the others aren’t left holding the bag financially. It’s like teamwork the financial risk hanging over your head.

Traditional Partnerships and Limited Liability Partnerships: How These Differ?

In the abovementioned section, we briefly compared traditional partnerships and limited liability partnerships. So, it’s quite natural to assume, you may be a bit curious to learn more. And thinking about that, we briefly discussed the topic further for you. Take a look below:

  • Financial Responsibility: When it comes to money, traditional partnerships put it all on the line—partners are on the hook for all the business debts. On the other hand, LLPs limit each partner’s liability to what exactly they’ve put into the business. It’s like playing it safe while being committed in the game.

  • Risk Protection: Now, let’s talk about risk protection. LLPs give partners a safety net similar to what limited company shareholders enjoy. This means less personal risk compared to the gut-wrenching uncertainty of traditional partnerships.

  • Professional Suitability: Next comes professional suitability; If you are in a profession that thrives on teamwork and cooperation, like law or accounting, LLPs are a dream come true. They offer the best of both worlds—limited liability and partnership perks—making it a no-brainer for people who know what they are doing.

  • Operational Flexibility: Both traditional partnership and LLP structures allow for flexible internal management and profit distribution. However, LLPs offer additional security by limiting partner responsibility.

Advantages and Disadvantages of LLP

An LLP combines elements of both partnerships and limited companies, offering unique advantages and challenges. Potential partners must weigh these factors carefully.
Now, let’s briefly discuss the advantages and disadvantages of LLP for your better understanding:

Limited Liability Partnership Benefits

  • Limited Liability: An LLP protects individual partners from personal liability for business debts beyond their investment.

  • Tax Flexibility: Profits of LLPs are passed on to partners and taxed as personal income.

  • Operational Flexibility: LLP’s operational flexibility allows partners to define their roles and responsibilities through agreements, adapting to business needs.

Disadvantages of an LLP

  • Shared Liability: While liability is limited, partners are still responsible for the business actions of their co-partners to some extent.

  • Public Disclosure: Requires some degree of financial disclosure, reducing privacy.

  • Restrictions on Investment: Cannot raise capital by issuing shares to the public, which may limit growth opportunities.

This is only a brief discussion; if you’re interested in learning more, you can browse our blogs as we have a whole blog on “Advantages and Disadvantages of LLP.”

Who Can Incorporate an LLP?

Two or more individuals or entities engaging in legal business activities to make a profit can form an LLP. The formation should be done by signing its incorporation documents and declaring the member’s goal to establish the LLP for lawful purposes.

In legal terms, a “person” can be either a person, a business, or a partnership. LLPs, on the other hand, are not suitable for activities that do not aim to make money, like non-profit endeavors.

Limited Liability Partnership Registration Requirements

A Limited Liability Partnership (LLP) can be formed with two or more members to manage a business. A member can be an individual or a company, also known as a “corporate member.”

Like in a traditional partnership, each member is taxed on their share of the profits. However, they are not personally liable for any business debts that can’t be paid.

Take a look below to learn how to go through a Limited Liability Partnership Registration:

  • Choose a name.
  • Have a registered office address—which will be publicly available.
  • Have at least two “designated members.”
  • Have an LLP agreement that states how the LLP will be run.
  • Register the LLP with Companies House.

1. Choose a Name

The name you will choose cannot be the same or too similar to that of an existing registered company.

Your name must conclude with ‘Limited Liability Partnership’ or ‘LLP’. If your LLP is in Wales, the Welsh equivalents could be used.

You cannot pick a name that is deemed ‘same as’ or ‘too like’ another registered name if it closely resembles it.

1.1 ‘Same as’ Names

These are names where the only difference from an existing name includes:

  • Specific punctuation or special characters, like the ‘plus’ sign.

  • A word or character that looks or means something similar to one in the existing name.

  • A word or character frequently used in UK company names (e.g., ‘company’ or ‘co’).

1.2 ‘Too Like’ Names

You might need to change your name if someone objects and Companies House agrees it’s ‘too like’ a name registered before yours.

Other Rules

  • Your LLP name cannot be offensive.

  • It also can’t include ‘sensitive’ words or imply a connection with the government or local authorities without permission.

1.3 Business Names

You can operate under a different name from your registered name, known as a ‘business name’.

Business Names Must Not

  • Include “public limited company,” “limited liability partnership,” “limited liability company,” “LLP,” and “plc.”

  • Be the same as an existing trademark.

  • Contain a ‘sensitive’ word or expression unless authorized.

If you don’t want other people to use your business name, you must trademark your name as a brand. It is against the law to use someone else’s trademark as your own business name.

1.4 Displaying Your Name

Follow specific rules about displaying your company name.

You can operate under your own name or choose another name for your business. You do not need to register your business name.

You must include all partners’ names and business names (if applicable) on official documents like invoices and letters.

2. Registered Address

A registered office address is the official address of the LLP and is where all formal communications will be sent. To form an LLP you must have one.

If you hire a third-party service to handle your mail, make sure they send all of your mail to your registered office address.

Your registered office address must:

  • Be a physical location.

  • Be in the same country where your LLP is registered (e.g., an LLP registered in Scotland must have a registered address in Scotland).

You can use a PO Box if you also provide a physical address and postcode with it. You are welcome to use your own home address but keep in mind that the address will be publicly available.

3. Have at Least 2 ‘Designated Members’

Appoint at least two designated members who will be responsible for administrative duties and legal compliance of the LLP.

4. Have an LLP Agreement

Draft an LLP agreement outlining the roles, responsibilities, profit sharing, and operational rules among members.

5. Register the LLP with Companies House

Officially register your Limited Liability Partnership with Companies House to obtain legal recognition and begin trading.

Limitrd Liability Partnership Requirements.
Limited Liability Partnership Registration: A Handbook of LLPs

How to Register a Limited Liability Partnership in the UK

Before setting up an LLP, you must need the following documents (as a nonresident):

  • A valid copy of your passport, NID, or driver’s license.
  • Bank Statement.
  • Utility bills.

After gathering the necessary documents and managing all the requirements, you can register your LLP by any means given below:

Register Your Limited Liability Partnership

Register your LLP by yourself using approved software, by post, or through an agent. Once registered, you’ll receive a certificate of incorporation.

Register Electronically

Third-party software can be used to register your LLP. Costs vary by software provider. Typically, registration takes 24 hours, but same-day registration is available before 3 pm for an additional fee.

Register by Post

Complete and submit the application form to register a limited liability partnership.

Use an Agent

A formation agent like Business Globalizer can handle the registration of your LLP with customized UK company formation packages. Fees vary depending on the agent chosen.

Limited Liability Partnership Registration Online

You can submit electronic incorporations using specialized software. Many incorporation agents and software providers offer web-based services for a fee, making them accessible for both occasional and regular users. Depending on how often you plan to file, using the services listed on HMRC’s software suppliers list might be more convenient for you.

LLP Registration Fees

LLP registration fees can change from time to time based on different factors. If you are curious to learn about the details please visit the official website of HMRC. There you will get the updated price of every incorporation and compliance.

Members of an LLP

Limited liability partnerships require at least two designated members to register. However, if you’re looking to establish an LLP by yourself, you can include a dormant company as the second member to meet this requirement.

Who Can Be a Member of an LLP?

The members of the LLP have the authority to choose who should be appointed. They must ensure that the appointees:

  • Have not been banned from serving as a company director or LLP member, unless they have received court approval to act for a specific LLP.

  • Are not currently declared bankrupt, unless they have received court permission to act for a specific LLP.

What are Designated Members?

According to the Companies Act, a member of an LLP can also be a designated member. Every limited liability partnership must have a minimum of two designated members at all times. Even though designated members have the same rights and responsibilities as other members, they also have some additional duties which are detailed in the section below (Designated Member’s Responsibilities).

Members’ Responsibilities In Limited Liability Partnership Registration

A Limited Liability Partnership (LLP) protects its members’ personal assets. However, becoming an LLP member comes with specific responsibilities during the registration process and beyond. The responsibilities are:

Making the LLP Agreement

When forming an LLP, it’s important to create an LLP agreement with other members. This document will entail the operational framework of the LLP, which includes:

  • How profits are divided among members.
  • Decision-making processes and necessary approvals.
  • The duties and responsibilities of each member.
  • The process for members to join or exit the LLP.

You can draft your LLP agreement on your own or seek an attorney’s assistance to make sure it’s comprehensive and legally sound.

All Member’s Responsibilities

Members are required to meet their obligations and adhere to the legal responsibilities outlined in the LLP agreement.

Each member must also register for self-assessment with the HMRC.

Designated Member’s Responsibilities

Designated members handle key administrative and management tasks for the LLP and its members. Their responsibilities include:

  • Handling Limited Liability Partnership registration for Self-assessment with HMRC and ensuring individual members also register separately.

  • Registering the LLP for VAT if annual sales are projected to exceed £90,000.

  • Appointing an auditor when necessary.

  • Maintaining accurate accounting records.

  • Preparing, signing, and submitting annual accounts to Companies House.

  • Filing a confirmation statement (previously known as the annual return) to Companies House.

  • Reporting any changes to Companies House and HMRC.

  • Managing statutory registers, including the PSC register.

  • Representing the LLP in legal proceedings or during the dissolution process.

  • Ensuring compliance with all statutory requirements.

Note: If no members are specifically designated, all partners are treated as designated members by law. Designated members may face legal action if they fail to fulfill their responsibilities. Additionally, the LLP itself could be struck off from the official register.

Limited Liability Partnerships Taxation

Here’s a question for you: did you know that limited liability partnerships (LLPs) play by different tax rules than regular companies? LLPs don’t have to deal with corporate tax returns or pay Corporation Tax.
Limited liability partnerships (LLPs) don’t submit corporate tax returns or pay Corporation Tax but must register for VAT if their yearly taxable turnover is over £90,000 starting April 1, 2024.

Now, here’s where it gets interesting. Each of LLP gets taxed individually based on their share of profits. That means they must deal with self-assessment, filing annual tax returns, and coughing up Income Tax and National Insurance on what they earn.

Compare that to company directors who usually get paid through PAYE. But if they receive dividends or any other untaxed income, they must also do some self-assessment tax return dance.

LLP members are responsible for keeping detailed accounting records to support their tax filings.

Taxation Rules for Salaried LLP Members

It’s a whole different ballgame for salaried LLP members. New tax rules label them as ’employees’ for tax and National Insurance reasons if they tick off these boxes:

  • Significant Influence: The member does not have significant control over the LLP’s operations.

  • Disguised Salary: The member works for the LLP in return for a payment, of which at least 80% is fixed, or the payment varies but is not influenced by the LLP’s profits or losses.

  • Capital Contributions: The member’s investment in the LLP is less than 25% of their fixed payment.

These rules only affect members of limited liability partnerships, not partners in traditional or limited partnerships. Also, not all LLP members are impacted, as LLPs can have a mix of self-employed and employed members.

However, most LLPs will likely be affected since typically only senior partners wield significant influence. When these rules apply, LLPs must process these members’ salaries and National Insurance through PAYE.

Filing Requirements of an LLP

Filing requirements for an LLP in the UK include:

  • Annual Accounts: An LLP must submit annual accounts that reflect the LLP’s financial activities to Companies House annually.

  • Confirmation Statement: Required to file a confirmation statement each year confirming the accuracy of the information held by Companies House.

  • Individual Income Tax Return: All partners or members of the LLP must file individual income tax returns—through self-assessment registration—with HMRC, detailing income, expenses, and other relevant financial information.

  • Notify Changes: Any changes in membership, changes in the registered office, or amendments in the LLP agreement must be reported to Companies House.

Changes You Must Report

You need to inform Companies House of any updates to the LLP’s registered or alternative address, changes in members’ details (like names or addresses), or the registered name of the LLP.

Take a look at the shortlist of changes you must report to the Companies House:

Your LLP’s Registered Address.
Where your LLP records are kept.
LLP member’s details.
Your LLP’s name.
Directors and secretaries.
Accounting reference date.

What are the Differences Between Ltd and LLP?

As both entities offer limited liability, a curiosity about differences between those structures could arise. Worry not; we explored briefly about “limited company vs. Limited Liability Partnership (LLP)” here:

  • Ownership and Governance: LLP ownership can be obtained through memberships, with flexible, collaborative decision-making. Limited company can be owned via shares; structured, hierarchical governance with decisions by directors and shareholders.

  • Liability: In LLPs, members’ liability is limited to their contributions, protecting personal assets beyond investment. In Limited companies, shareholders’ liability is limited to the value of their shares; losses are restricted to the investment.

  • Taxation: LLP profits are taxed as the personal income of members. A limited company is subject to corporation tax —through a CT600 form—on profits.

  • Compliance and Administration: An LLP must register and file annual accounts with less stringent requirements. On the other hand, a Limited company faces stricter regulatory and reporting demands, including detailed financial disclosures.

Note: This is only a short preview of the differences between a limited company and an LLP. For more details, visit our blog on “Limited Company vs. Limited Liability Partnership (LLP).”

Should I Form a Limited (Ltd) Company or an LLP?

Deciding whether to form a Limited Company (Ltd) or a Limited Liability Partnership (LLP) hinges on several key factors:

Choose an LLP if

  • Your business resembles a traditional partnership with a small, stable group of members who contribute and profit equally.

  • You’re involved in high-risk services where limited liability could protect against damage claims.

  • The flexible partnership structure suits your business’s management and profit-sharing preferences.

Opt for a Ltd Company If

  • You plan to raise capital by selling shares; this structure supports broader investment opportunities and shareholder involvement.

  • You expect to employ many people or have significant payroll requirements, offering more tax efficiency and structured management.

  • You want to form a non-profit. A company limited by guarantee (a form of Ltd company) is necessary to meet legal and operational standards in that case.

Is There Any Benefits of Converting an LLP to a Limited Company?

Benefits of converting an LLP to a Limited Company include:

  • Tax Efficiency: A Ltd retains profits and pays lower Corporation Tax compared to Income Tax on individual earnings.

  • Dividend Payments: In Ltd, you can use dividends for tax-efficient earnings withdrawal.

  • Structural Simplicity: Ltd follows model articles of association, unlike complex LLP agreements.

  • Sole Ownership: Ltd operates with just one owner, unlike LLPs which require at least two.

  • Stability in Sole Ownership: Ltd avoids reversion to sole trader status with one owner.

  • Protection Against Insolvency: A limited company has Greater safeguards against personal liability in insolvency.

  • Easier Expansions and Takeovers: Simplified acquisitions through share purchases.

  • Flexibility in Investment: Facilitates investment with simpler share transactions.

  • Market Opportunities: Potential to become a PLC and list on stock markets.

Is a Limited Liability Partnership the Same as an LLC

No, a limited liability partnership isn’t the same as an LLC. While both LLPs and LLCs offer legal protection and flexibility, they are different in several ways. Here’s a short exploration to help clarify their differences:

  • Ownership: LLP owners are partners; LLC owners are members, affecting management and liability.

  • Limited Liability Protection: LLC owners’ risk is limited to their investment, excluding personal acts. They are not responsible for other members’ actions. LLP protection varies by region or rules; partners may not be liable for each other’s negligence but might be for business debts.

  • Management: An LLC can be member-managed or manager-managed, with flexible internal structures outlined in the operating agreement. Partners manage the LLP, with terms detailed in the partnership agreement, focusing on profit distribution and partner duties.

  • Taxes: An LLC’s tax options include sole proprietorship, partnership, and corporation (C Corporation, S Corporation). LLPs are only taxed as a partnership, with profits and losses passed through to partners’ personal tax returns, with no company-level or corporate tax.

FAQs

Q1: What is a Limited Partnership in the UK?

Answer: Limited Partnership in the UK is an entity where it involves at least one general partner with unlimited and one or more limited partners whose liability is restricted to the amount of capital they contribute. This structure lets limited partners invest without worrying about the business’s debts beyond what they put in.

Q2: What Are Taxation Rules for Salaried LLP Members?

Answer: The salaried member rules are basically there to make sure that only LLP members whose roles are similar to traditional partners get taxed as self-employed. It’s like a little tax safety net, if you ask me.

Q3: What Is an LLP Agreement?

Answer: An LLP agreement is a must to have legal documents signed by the members—or partners—of a limited liability partnership. This agreement is all about setting up a fair business relationship among the members. It protects everyone’s rights and interests, making sure things run smoothly for each partner and the LLP itself.

Q4: What to Include in an LLP Agreement?

Answer: An LLP agreement should contain the following information:

  • Information about the company/business
  • LLP member’s information
  • Financial Provisions
  • Administration-related Arrangements

Q5: What Is the Liability of an LLP?

Answer: Limited liability in an LLP is like a shield for personal assets. You could say, it limits each partner’s financial responsibility to their investment and any personal guarantees they make. Sounds like a pretty good deal, don’t you think? Unlike traditional partnerships—where partners can be on the hook for all the business debts—in an LLP, personal finances are safe beyond what they’ve put in. Now, that’s what can be called a smart move!

Final Words

As you contemplate going through a Limited Liability Partnership registration, remember that an LLP not only offers limited liability to protect each partner’s personal assets but also grants the flexibility to manage your business efficiently. Whether you’re drawing up an LLP agreement, registering with Companies House, or navigating through taxation—we hope, this guide has equipped you with the essential knowledge to set up your LLP.

Take the first step towards structuring your partnership with confidence and strategic foresight. Ready to begin your LLP journey in the UK today? Let’s ensure your business foundation is strong and compliant, paving the way for future success and growth.

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