How is a limited liability partnership formed?

Since 2001, when the Limited Liability Partnership Act 2000 came into force, many professionals who traditionally operated as an ordinary business partnership – such as solicitors and accountants – switched to the limited liability partnership (LLP) model.

In this blog, we will explain how to form a limited liability partnership, but let’s first have a recap of the key features of an LLP.

What is a limited liability partnership?

A limited liability partnership or LLP is a business structure that combines some of the benefits of the ordinary partnership model with those of limited companies.

Key features of LLPs include:

• Limited liability – members of an LLP are generally not personally liable for the debts of the business.
• Legal personality – LLPs are considered to be legal entities in their own right, in the same way as limited companies.
• Companies House – limited liability partnerships must be registered with Companies House and file annual accounts and confirmation statements, in the same way as a limited company.
• No shares or Corporation Tax – LLPs do not have shares and do not pay Corporation Tax. Distributions of profits are normally set out in a Members’ Agreement and each member is individually liable to pay tax on their own portion of takings from the business.
• Privacy and flexibility – LLPs do not have publicly viewable articles of association that govern their processes. As such, they tend to have more flexibility compared to companies. Also, if they choose to implement a Members’ Agreement, this is a private document.

How do I form a limited liability partnership?

The general process of forming an LLP is similar to setting up a limited company. The main steps are as follows:

Choose a name for your limited liability partnership

It is first necessary to check the public register of companies to find out which names have already been taken.

The name cannot be too similar to the existing name of an LLP or limited company. It cannot contain any words which could be considered offensive or discriminatory, or which are prohibited by the Companies House list of sensitive words.

Furthermore, the full official name of an LLP must end in “Limited Liability Partnership” or “LLP” – or their Welsh equivalents.

Register with Companies House

Once you have chosen a name, it is time to form your LLP by registering it with Companies House. Quality Company Formations allows you to form a limited liability partnership online for £69.99 plus VAT, which includes registration with Companies House.

Alternatively, you can register an LLP directly with Companies House, but this cannot currently be done online. It has to be done via post using form LL IN01 at a cost of £50.00. As such, it is faster and cheaper to register your LLP with a company formation agent such as Quality Company Formations.

Ordinary and designated LLP members – what’s the difference? The benefits of forming a limited liability partnership Running an LLP: filing and reporting requirements 

Part of the registration process requires the submission of a registered LLP address. This cannot be a PO Box number; it has to be a full physical mailing address in the same country in which the LLP is being registered.

A home address can be used but this will be publicly viewable. Quality Company Formations offers a Registered Office Address Service which can be used for purposes of registering an LLP.

Designate members

An LLP must have at least two partners – known as designated members – at all times.

It is possible for all partners to be automatically classed as designated members, or else to define specific partners as designated members.

Designated members of an LLP have specific responsibilities, including:

• maintaining accounting records
• submitting annual accounts and confirmation statements to Companies House
• updating any relevant changes to the LLP on the register of companies
• and acting for the LLP if it is wound up and dissolved.

LLP Agreement

Many limited liability partnerships decide to create a Members’ Agreement. Although it is not a legal requirement, this helps to ensure the business runs smoothly and minimises any disputes between members.

The Members’ Agreement, which can remain private to the LLP, often sets out:

• the distribution of profits between members
• the decision-making process within the limited liability partnership
• any specific responsibilities of individual members
• the joining and exit process of members

It is advisable to set up a Members’ Agreement as part of the formation process of a limited liability partnership.

Quality Company Formations can help you set up a limited liability partnership with our LLP Package. This includes registration with Companies House and a free draft Members’ Agreement.