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Limited Liability Partnership - don't overlook this option


Posted: 03/09/2014    By: Andy Crawford      Leave comment | None left yet

Tagged: tax+efficiency,incorporation


Having decided to start a business with a partner you may decide to protect your assets by incorporating it. Limited Liability Partnerships (LLP's) are a recent development (introduced in 2000 and governed by the Limited Liability Partnerships Act 2000) which give each partner, or member, a limited liability in the event of failure. This is similar to the limited liability company structure, but there are other differences between the two structures which should be explored to ensure you decide on the company structure that best suits your business. One thing that should be made clear is LLP's, although ideal for professional partnerships (accountants, solicitors, etc), is not only suitable for said partnerships. It is an option for many types of business partnerships.

Limited Liability Partnerships in brief

Once set up each partner becomes a member of the LLP. As a member they become entitled to an equal share of the profits.

Below is a list of facts that apply to LLP's with, where applicable, a comparison to the limited liability company structure.

  • Company identity - LLP's are a legal framework, that is to say, authorities will treat the LLP as a person, exactly the same way they would treat a limited liability company.
  • Limited liability - in the event of failure (providing failure was not the result of fraud or wrong doing) members cannot lose more than they invested into the LLP. This is similar to limited liability companies.
  • Member employment status - members are classed as self-employed, not employed. This creates the opportunity for a number of tax savings.

Tax advantages

As members are not employed by the LLP they do not have to adhere to the PAYE rules of employed status. Moreover, the LLP pays no corporation tax or capital gains tax. All gains are paid to the LLP members gross. Each member will then deduct any allowable tax allowances and expenses and pay the tax at his marginal rate on the balance.

One tax saving is national insurance. As an employed director you pay national insurance but so does your employer on your behalf. For limited liability companies this can become quite a burden. But as a self employed member you pay it once and at a substantially lower rate than that of an employed person - the LLP pays nothing on your behalf.

LLP structure flexibility

As each member gets an equal share of the profits LLP's legal structure easily accommodates the addition of new members. If you have an expanding business the promise of LLP membership can be a huge incentive for recruits.

LLP suitable for your business partnership?

If your business is made up of skilled workers equally contributing to the profits of the business this structure may well be a better fit than the limited liability company structure option. You will benefit from the limited liability upon failure but also benefit from the tax advantages of a standard partnership.

Quick Books Accountants are able to advice on the most suitable company structure and help in their formations. We have a wealth of experience in this area.


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