A Limited Liability Partnership (LLP) is an entity formed by two or more individuals under Limited Liability Partnership Act 2000. In an LLP, like a company, the liability of its members is limited to the amount contributed. Partners will not be personally responsible to pay the debts which the LLP is unable to settle.
But unlike the company, the profit earned by the Limited Liability Partnership business is shared among the partners and count as their personal income (rather than income of LLP itself). So, LLP do not pay corporation tax.
Whether choosing an LLP for property business depends on different factors.
Why LLP Instead of Company?
Why LLP Instead of General Partnership?
A Legal Form
A general partnership, not having a legal form, faces difficulties in carrying out trade or investment of high volume or entering into lease or any major contracts. LLP on the other hand, being an independent legal entity, can enter into contracts and run business of any nature and volume.
A Protected Identity
As LLP name is registered in the Companies House, no other LLPs can use the same name. This protects goodwill and brand from being fraudulently misused by others.
In certain cases, LLP is the best option. But there are many conditions under which, a company or a general partnership work better than an LLP.
Why Company Instead of LLP?
Why a General Partnership Instead of LLP?
Unlike the general partnership, LLPs need to file accounts (abbreviated accounts for small LLPs) every year to the companies’ house. Filing is compulsory even when LLP is inactive. Similarly, changes in business address, contribution of capital or loan, addition or removal of members should also be updated at least annually through confirmation statement.
By default, the correspondence addresses of the partners are publicly available in Companies House record. So, confidentiality might be compromised. You can register your correspondence to be your agent’s address, but it incurs cost.
Loss Relief Restriction
LLP may not be beneficial where business faces loss. The partners of a general partnership can set off partnership losses with other income and capital gains (s.64/72, ITA 2007, s.71 ITA 2007, s.261TCGA 1992). But in case of an LLP, relief is restricted to the partner’s respective capital contribution.
Frequently asked questions
LLP members (meaning the partners), should fill up an incorporation document (form LL IN010) and submit to Companies House online. While setting up an LLP, the members can form a legal document “LLP members’ agreement” which clarifies the duties, rights and profit allocation ratios of members.
The concept of limited liability applies to companies. If the capital of the company is insufficient to settle all the debts, loans or financial obligations, then the shareholders will not be personally liable for such debts or loans or financial obligation. Here, the liability of the shareholders is limited to the capital they injected.
Yes. But salaries are not deductible when calculating taxable profit of an LLP.
LLP being a separate entity as per law, can own assets and generate income from it.
A Limited Partnership is a hybrid of LLP and general partnership. There are two kinds of partners having different roles:
(at least one)
(at least one)
Liability is not limited like in normal partnership
Liability is limited like in LLP
Carries on the management of partnership business
Restricted from carrying on the management of the partnership
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