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Limited Liability Partnerships

From 5 April 2001 businesses wanting to limit their liability have been able to arrange themselves as a limited liability partnership (LLP) as an alternative to forming a limited company. LLPs came into force as a result of pressure from professional firms who wanted the protection of limited liability whilst retaining the tax benefits and traditional structure of a partnership.

Legally LLP’s are recognised as ’bodies corporate’ and are subject to most aspects of company law. Unlike
directors of a limited company, provided the partnership operates with a view to making a profit, the members of the LLP are treated as though they were carrying on a business in partnership for the purposes of Income Tax, Corporation Tax and Capital Gains Tax.

Requirements of an LLP

  • To be registered at Companies House
  • To complete an Incorporation Document and submit it to Companies House.
  • To have at least two members.
  • To appoint at least two designated members who will be responsible for a number of duties including the signing and filing of annual accounts with Companies House.
  • To apply the same accounting and auditing requirements as apply to companies.
  • Annual accounts must be audited if the turnover for a financial year exceeds £5.6 million.
  • File an Annual Return and Annual Accounts with Companies House.

Tax Treatment
For those transferring from an existing partnership into an LLP the transfer is tax-neutral. It is not possible to convert an existing partnership into an LLP; instead, an LLP should be formed and the business and assets should be transferred from the old partnership as a going concern. The old partnership can then be dissolved if no longer required.

Unlike a limited company which is taxed in it’s own right, an LLP is taxed as though it were a non-limited liability partnership in that the members are taxed on their share of the partnership profits as set out by the partnership agreement. They are also subject to Class 2 and Class 4 NIC in the same way as a partner in a partnership. Should an LLP cease to operate with the view to make a profit it is possible that it would become liable for tax in it’s own right as though it were a company.

Main Features

  • An LLP is a separate legal entity from its members and can contract in its own right.
  • Members enjoy limited liability.
  • An LLP enjoys the organisational flexibility of a partnership.
  • Each of the members are taxed on their share of the profits.
  • Accounting and Auditing requirements are similar to those of a limited company.
  • Designated members are in office rather than directors.

For more information please visit:
HMRC - http://www.hmrc.gov.uk/bulletins/tb50.htm#2
Companies House - http://www.companieshouse.gov.uk/about/pdf/gbllp2.pdf

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