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Updated on 18/08/2014
1. A Limited Liability Partnership (LLP) offers limited liability to its members but is tax transparent and offers flexibility in terms of its internal organisation.
2. LLPs were primarily intended for use by the professions. However, any type of business operating for profit may use LLPs. An LLP may be suitable for use as a joint venture vehicle or as an alternative to a limited company, particularly for small businesses.
3. An LLP is a separate legal entity from its members. Therefore, it may enter into contracts and deeds, sue and be sued and grant floating charges over its assets in its own name. This avoids the problems that exist in relation to partnerships, where technically it is often necessary for every partner to be party to certain documents or litigation, and the creation of floating charges is not possible.
4. The members of the LLP are those persons registered at Companies House as members. The main ‘price’ paid in return for limited liability is public availability of financial statements. An LLP must file audited accounts annually at Companies House, which must include the name and profit share of the highest paid member. In addition the LLP must also file details of the name and address of every member at Companies House. At least two members must be ‘designated members’ responsible for making proper filings at Companies House (and subject to penalties in the event of default).
5. If an LLP carries on a trade or a profession and is not simply an investment vehicle it is tax transparent – that is the LLP itself is not taxed on its income or capital gains at all. Instead the members are taxed on their shares of the LLPs’ profits and gains, just as partners in a partnership are currently taxed. This means that the LLP may be more tax efficient than a limited company. This is because ordinarily a limited company is taxed on its income and capital gains and the company’s shareholders are taxed on distributions from the company to them, giving rise to potential double-taxation.
