1. Overview
A limited liability partnership (LLP) is similar to a normal partnership, but it also offers reduced personal responsibility for business debts.
The LLP itself - not the individual members - is responsible for any debts that it runs up, unless individual members have personally guaranteed a loan to the business.
LLPs are more complicated to set up and run than ordinary partnerships. They have to meet many of the same requirements as limited companies but LLPs are designed to be used by profit-making businesses. Non-profit making organisations should not use this business structure.
This guide will give you a brief overview of what is required.
If you are unsure about any aspect of forming an LLP, seek professional advice from your solicitor, accountant or formation agent.
2. The members of an LLP
Any group of two or more people can form a limited liability partnership (LLP), unless one of them has a disqualification order in place. A disqualification order means they are unable to act as a company director or LLP member.
How many members should an LLP have?
An LLP must have at least two members, and at least two must be 'designated' members. If there are fewer than two designated members then every member is deemed to be a designated member.
The rights and responsibilities of LLP members
The members of an LLP normally share in both the responsibilities of running the business and the profits. Their rights and responsibilities and divided depends on the LLP's partnership agreement or 'deed of partnership'. Designated members have some extra responsibilities on top of those of ordinary members.
The responsibilities of designated members
Designated members must:
- register the LLP at Companies House
- appoint an auditor - if one is needed
- prepare and sign the accounts on behalf of the members
- deliver the accounts to Companies House
- notify Companies House of any membership changes, or of a change to the registered office address or name of the LLP
- prepare, sign and deliver the annual return to Companies House
- act on behalf of the LLP if it is wound up and dissolved
Designated members are legally accountable if they fail to carry out their duties properly.
Changes to members' details or status
It is important that you notify Companies House whenever any of the members' details change.
3. Where to register your LLP and get help
Companies House can advise you on the registration process for a limited liability partnership (LLP). However, they cannot give you detailed advice on drawing up the necessary documentation.
You can register your LLP yourself by completing application form LL IN01 and sending it with the fee to Companies House.
Download form LL IN01 from the Companies House website (PDF, 866K)
It is a good idea to seek professional advice. A company formation agent, solicitor or accountant can carry out the process for you, for a fee, and offer advice. A solicitor will also be able to help you draw up your deed of partnership. Many incorporation agents and software providers are now able to offer their customers a web-based electronic service. This is an easier and quicker way for you to register your LLP but this is chargeable.
Search for a qualified solicitor on the Law Society of Scotland website
You may not be able to use the LLP name you want if that name is the same as that of another LLP or company on the registrar's index of company names.
There is an exception to this. The existing LLP or company must be in the same group as your LLP and they must consent to your proposed LLP name.
The cost of registration
Find out about Companies House fees on the Companies House website
Companies House aims to process standard paper documents within five days of receipt.
Further help
Companies House will guide you through the registration process. You can also ask a solicitor or company formation agent to handle this for you. It is a good idea to seek the help of a solicitor to draw up a deed of partnership.
4. Deed of partnership
A deed of partnership (or 'partnership agreement') is a legally binding agreement between the partners who are in business together. It describes how the partnership will be run and the rights and duties of the members themselves. The deed of partnership is usually drawn up by a solicitor, who will consult with the partners about exactly what should be in it.
It's a good idea to have a deed as it can help to prevent misunderstandings and disputes between members.
What does the deed of partnership cover?
As well as giving basic information about the partnership, the deed will usually set out:
- the amount of capital that each partner is to contribute to the business
- the way in which profits or losses are shared between partners, and whether any of the partners should be paid a salary
- working arrangements, such as how much time each partner should contribute to the business and what type of decisions need collective agreement between the partners
- changes to the partnership, such as how new partners can be appointed and what happens if a partner dies or wishes to leave
If members do not have a deed, they will be governed by the Limited Liability Partnerships Act 2000 (LLP Act 2000) terms. However, the Act does not offer solutions to many of the problems that can arise and may not suit you and your members. Read about the LLP Act 2000 on the HM Revenue & Customs (HMRC) website.
5. Naming your LLP
A limited liability partnership (LLP) can trade under the names of the partners, or some of the partners. You might choose to use an established business name of this kind if you are converting your ordinary partnership to an LLP.
The trading name should not be the same as, or too similar to, that of any business that already exists. It should not contain words that people might find offensive or misleading. The name must end with 'Limited Liability Partnership' or 'LLP'.
You need to obtain permission from the relevant professional bodies to use professional words, such as architect or solicitor, in your business name.
You will also need to obtain permission to use words connected with public authorities, such as health, education, etc.
Make sure that your business website and stationery - such as letters and invoices - display the trading name and the fact that it is an LLP. They must also display the place of registration, the registration number, and the address of the registered office.
Find out how and where you must disclose the name of your LLP on the Companies House website.
6. Tax matters of an LLP
Once you've registered the LLP with Companies House, they will notify HM Revenue and Customs (HMRC). HMRC will then set up the right tax records for the partnership.
Each partner in the LLP must also register separately with HMRC to get their own tax records set up.
LLPs are generally treated the same as general partnerships for tax purposes. Like partnerships, profits are shared among the members of a limited partnership. Individual members - not the limited partnership - pay tax on income or gains. Unlike limited companies, LLPs are not generally liable for Corporation Tax. The nominated partner will need to complete a Self Assessment tax return for the partnership every year. Members of the LLP will also need to complete a Self Assessment tax return and show their share of the profits on it.
Read our guide Naming your limited company or limited liability partnership
Get the support you need right now
You can connect with us through the contact form, call us or contact your local Business Gateway office.