Limited Liability Partnerships – what’s the attraction?

Limited Liability Partnerships (LLPs) have been around since April 2001.  For the organisation and the individuals who own it, a Limited Liability Partnership combines the advantage of being taxed like a partnership with limited liability, corporate personality and organisational flexibility.

As predicted, LLPs have proved popular with law and accountancy firms.  But it doesn’t stop there.  They are becoming the corporate vehicle of choice for a much broader range of businesses than was ever anticipated.  From flowers to farming, LLPs of all shapes and sizes are appearing on the register of companies in increasing numbers.   According to Companies House figures, this financial year has seen an average of 188 limited liability partnerships formed each week.

So why is this?

There is perhaps a perception that establishing and administering a limited liability partnership is more straightforward than a limited company. 

Certainly, with the recent introduction by Companies House of electronic incorporation for LLPs, the formation process is a simple online process with no time-consuming paperwork to complete or sign.

Becoming a member of a limited liability partnership could also be seen as a less daunting prospect for the individuals involved in the business.  No doubt this has been fuelled by recent publicity surrounding the responsibilities of limited company directors and the dire consequences of neglecting them. 

Without question, the Companies Act 2006 has brought directors duties generally into much sharper focus.  And LLP membership does have its advantages.  For example, members do not have to contribute a minimum amount of capital, even in the event of a winding up.   But prospective members should remember that although a limited liability partnership has no directors, its  members do have responsibility for the organisation’s activities in the same way as a director. In addition, the "designated" members have particular responsibility for ongoing compliance.

That compliance includes:

  • filing an annual return and annual statutory accounts similar to those filed by limited companies. Small company exemptions do apply, including audit exemption rules.
  • ongoing compliance and filing requirements at Companies House.
  • maintaining statutory registers, some for public inspection

And the conclusion to all this?  All corporate entities have their pros and cons and a limited liability partnership is no different – weigh them up and choose the one that’s right for you and your business.

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