Understand the advantages and disadvantages of UK Limited Liability Partnerships

A Limited Partnership was the first structure of its kind to be introduced in the UK. It allows one partner to have unlimited liability while the second partner could have an investment in the business without any liability at all. A more progressive version called Limited Liability Partnership shortly followed.

In the private sector, there are organisations which are owned and managed by private individuals with a core purpose of profit making. There are many different entity structures available, which include Limited companies (being the most popular), partnerships, and sole traders.

Limited Liability Partnerships (known as an LLP) have a legal existence reliant upon its membership, and it is preferable amongst industries such as design and financial firms. In comparison to an LP, in this structure, each partner is not liable for another partner’s misconduct or negligence. Similarly to a limited company they are not personally responsible for liabilities beyond what they have invested in the business.  

If the LLP structure looks like a good option and you are wanting to establish a small business, before incorporating a professional partnership program, you may find it useful to consider the advantages and disadvantages of setting an LLP in the UK.

Advantages of Limited Liability Partnerships

• A written agreement between the members determines the terms of the partnership and delivery of its profits. This can provide a more flexible approach when it comes to the management and running of the company.
  
• LLP’s can appoint two companies as members opposed to a Limited company, where at least one director must be an actual person. This provides privacy to its members. Therefore the individual’s identify will not be exposed as widely or unnecessarily.  
  
• You are protecting the partnership’s company name. By registering the LLP at Companies House, you prevent another partnership or company from registering the same name.
  
• With a Limited Partnership, a partner’s personal assets can be seized to settle the partnership’s debts. With an LLP structure, it provides protection and separation of the member’s personal assets from the liabilities of the business.
  
• LLP’s are a separate legal entity to its members. LLP is thought to be a legal person in its own right. Through an LLP, you can buy, rent, lease, and own property. You can also employ staff, enter into contracts, and be held accountable if necessary. This avoids the problem occasionally encountered by ordinary Limited Partnerships where every partner has to sign certain documents in their own names.
  
• LLPs do not have to be dissolved on the resignation, death or bankruptcy of a member. This means the trading can continue undisrupted during and following a difficult period.
  
• There are tax benefits as members of an LLP are taxed as partners in a partnership and are treated as being self-employed.

Disadvantages of Limited Liability Partnerships

• Similarly to a limited company, public disclosure is often considered to be the main disadvantage. Financial accounts have to be filed at Companies House for public record. The accounts regularly include the income of the members, which they may not desire to be made public.
  
• Profit cannot be reserved in the same way as a company limited by shares. This means all earned revenue is distributed without any flexibility to hold over earnings to an upcoming tax year.
  
• LLP must have at least two members. If one member decides to leave the partnership, the LLP cannot survive on its own, and you may have to consider dissolving.
  
• Incorporation of an LLP is more complex and can be more costly than an ordinary partnership. The expenditures of administering the LLP are usually higher than those for an ordinary partnership due to the extra accounting and reporting requirements.

After evaluating the advantages and disadvantages of incorporating an LLP in the UK, if you are leaning towards this option, More Group is here to provide expert guidance. We specialise in business incorporation services, and as your accountant, and we can offer tips and advice along the way to you building a successful business.

More Group offer a free consultation, where one of our experts can advise you on whether a Limited Liability Partnership is the best option for you based on your objectives. We understand that all businesses are unique and we would like to support you with tailored solutions.

For more information, please visit our incorporation services page, or contact us directly:

Tel: ++++020 3820 7385

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Note: The information should not be construed as legal or other advice as it designed as an information source only © More Group 2018. All rights reserved.