What is a Limited Liability Partnership?

For an overview of different business types in the UK, see Business Structures.

A limited liability partnership (LLP) is a business structure that combines the organisational flexibility of a traditional partnership with the benefit of limited liability for its members. LLPs are governed by the Limited Liability Partnerships Act 2000 and are a popular choice for professional services firms such as solicitors, accountants and consultants.

Unlike a traditional partnership, an LLP is a separate legal entity that can own property, enter contracts and sue or be sued in its own name. Members of an LLP are not personally liable for the debts of the partnership beyond their capital contribution, unless they have given personal guarantees.

How Does an LLP Differ from a General Partnership?

Formation and Registration

To form an LLP, you must apply to Companies House using form LL IN01. The application requires:

• Name of the LLP, which must end with “Limited Liability Partnership” or “LLP”
• Registered office address in England and Wales, Scotland or Northern Ireland
• Details of at least two designated members
• A statement of compliance confirming all legal requirements have been met

The registration fee is £40 for standard registration or £30 for online filing. Same-day registration is available for £100.

Once registered, the LLP receives a certificate of incorporation and is assigned a unique company number. The LLP must then comply with ongoing filing requirements, including submitting a confirmation statement and annual accounts.

Members and Designated Members

An LLP must have at least two members at all times. If membership falls below two for more than six months, the remaining member may lose the protection of limited liability.

Designated Members

Every LLP must have at least two designated members who carry additional legal responsibilities:

• Signing and filing the annual company accounts
• Filing the confirmation statement
• Notifying Companies House of changes to membership or the registered office
• Appointing an auditor where required
• Acting on behalf of the LLP if it is wound up

If the LLP agreement does not specify designated members, all members are treated as designated members by default.

Members’ Agreement

Unlike a company, which operates under its articles of association, an LLP is governed by a members’ agreement. This internal document typically covers:

• Profit-sharing arrangements
• Capital contributions and withdrawals
• Decision-making procedures and voting rights
• Admission and retirement of members
• Dispute resolution mechanisms
• Non-compete and confidentiality clauses

There is no legal requirement to have a written members’ agreement, but operating without one means default provisions under the Limited Liability Partnerships Regulations 2001 apply. These defaults give every member equal profit shares and equal voting rights, which may not suit all businesses.

Tax Treatment

An LLP is tax-transparent, meaning the LLP itself does not pay corporation tax. Instead, each member is taxed individually on their share of the partnership profits:

• Individual members pay income tax and National Insurance contributions on their profit share
• Corporate members pay corporation tax on their allocated profits
• Members are treated as self-employed for tax purposes, not as employees
• Each member must register for Self Assessment with HMRC and file a personal tax return
• The LLP must also file a partnership tax return (SA800) with HMRC each year

Salaried Member Rules

Since April 2014, HMRC applies the salaried member rules to determine whether an LLP member should be treated as an employee for tax purposes. A member is treated as a salaried employee if all three of the following conditions are met:

1. At least 80% of their remuneration is disguised salary (fixed, not variable with profits)
2. The member does not have significant influence over the affairs of the LLP
3. The member’s capital contribution is less than 25% of their disguised salary

If all three conditions apply, the LLP must operate PAYE and National Insurance on that member’s income.

Accounting and Filing Requirements

LLPs must comply with accounting and filing requirements similar to those for limited companies:

• Prepare annual accounts in accordance with UK GAAP (FRS 102 or FRS 105 for micro-entities)
• File accounts with Companies House within nine months of the financial year-end
• File a confirmation statement at least once every 12 months
• Maintain proper accounting records showing the LLP’s financial position

Audit Requirements

An LLP must have its accounts audited unless it qualifies as small under the Companies Act 2006. To qualify as small, the LLP must meet at least two of the following in consecutive financial years:

Most professional services LLPs exceed these thresholds and therefore require an annual audit.

Members’ Liability

While members generally enjoy limited liability, there are circumstances where personal liability can arise:

• Fraudulent trading under s.213 of the Insolvency Act 1986
• Wrongful trading under s.214 of the Insolvency Act 1986
• Clawback provisions allowing a liquidator to recover withdrawals made in the two years before insolvency if the member knew or should have known the LLP was insolvent
• Personal guarantees given by members to banks or landlords
• Professional negligence claims where the member personally provided the advice

Advantages of an LLP

Limited Liability

Members are protected from the debts of the LLP, unlike in a general partnership where partners face unlimited joint and several liability.

Flexibility

• No requirement for a board of directors or company secretary
• Members can structure profit-sharing and governance as they see fit
• Easier to admit and retire members compared to a limited company

Tax Transparency

• Profits are taxed only once at the member level
• No corporation tax at the entity level
• Members can offset personal losses against LLP profits

Professional Credibility

• Registered with Companies House, giving clients and counterparties confidence
• LLPs must file accounts, providing transparency

Disadvantages of an LLP

Public Disclosure

• Annual accounts must be filed at Companies House and are publicly available
• Members’ names and details appear on the public register
• Less privacy than a general partnership

Complexity

• More administrative burden than a general partnership
• Accounting and filing requirements add ongoing costs
• Need for a well-drafted members’ agreement

Self-Employment Status

• Members are self-employed and must manage their own tax affairs
• No employment rights such as holiday pay, sick pay or unfair dismissal protection
• Pay Class 4 National Insurance contributions on their profit share; since 6 April 2024 Class 2 is no longer compulsory, though members with profits below the small profits threshold can pay it voluntarily to protect State Pension entitlement

When Should You Choose an LLP?

An LLP is well suited for:

• Professional services firms (solicitors, accountants, architects, consultants) wanting limited liability without the corporate structure of a limited company
• Joint ventures where parties want flexible profit-sharing and governance
• Businesses with multiple owners who want to avoid unlimited personal liability but prefer tax transparency over corporation tax

An LLP may not be appropriate for a single-person business. In that case, consider operating as a sole trader or forming a single-member limited company.

Converting to or from an LLP

From a General Partnership to an LLP

A general partnership can convert to an LLP by registering with Companies House. The existing partnership agreement often forms the basis of the new members’ agreement. Assets and liabilities transfer to the LLP as a new legal entity.

From an LLP to a Limited Company

An LLP can be converted to a limited company, but this is more complex and may trigger tax liabilities on the transfer of assets. Professional advice is essential.

Related Concepts

• Companies House — the registrar of LLPs and companies
• Confirmation statement — annual filing requirement
• Company accounts — financial reporting obligations
• Articles of association — the equivalent document for limited companies
• Shareholders’ agreement — similar to a members’ agreement but for companies