Limited Liability Partnership (LLP)
Similar to a UK limited company, a limited liability partnership is a body corporate with a separate legal personality. LLP consists of a minimum of two members and must be a profit-making enterprise. The liability of LLP members is restricted to their investment in the partnership and provided personal guarantees. Thus, a UK LLP is an ideal solution for international companies seeking access to the European market. This legal form is also commonly used by professional practices such as law firms, accountants, etc.
A limited liability partnership is a legal entity in its own right and can own real estate and enter into contracts. An LLP is not subject to taxation in the UK. Its members are taxed individually at their place of residence. Therefore, if LLP members are not residents in the UK, they do not pay taxes in the country. LLP members may be both individuals and legal entities. All LLPs must register at Companies House, the official public register of UK entities, and must file annual accounts which are open for public inspection.
Key benefits of a limited liability partnership
- No capital requirements.
- Exemption from the UK Corporation Tax. It is a great advantage compared to other legal forms of entities.
- The relationship between members may be regulated in a private LLP agreement which is not mandatory. There are no fixed provisions for capital, directors or secretaries, general meetings, etc.
- Limited liability. LLP members’ personal liability is restricted.
- Tax transparency. The tax burden is shifted to LLP members and depends on their residence and place of operations.
- Corporate ownership. All LLP members can be legal entities in contrast to limited companies where at least one director must be an individual.
The most significant (and extremely positive) difference of LLPs from limited companies is exemption from corporation tax. This is because an LLP, while being a body corporate under the UK Limited Liability Partnerships Act, is also considered a group of individuals and/or legal entities for tax purposes. Each member receives its share of LLP profits and separately accounts for these profits to the relevant tax authorities.
Another significant difference between LLPs and limited companies is that relations between LLP members are vague and insufficiently regulated by law. Therefore, these relations should be defined in a special agreement between LLP members. Such LLP agreement is not registered anywhere and is essentially a private agreement.
Ready to set up a limited liability partnership or another entity in the UK? Get in touch with one of our UK experts to benefit from a free consultation, and register your UK business today!