Limited Liability Partnerships

I am thinking of going into business with two friends and one of them has said that a Limited Liability Partnership would be a good idea. What are they and do you think it is beneficial for us to operate as one?

1st July 2009

A Limited Liability Partnership (LLP) is similar to an ordinary partnership - in that a number of individuals or limited companies share in the risks, costs, responsibilities and profits of the business.

The difference is that liability is limited to the amount of money they have invested in the business and to any personal guarantees they have given to raise finance. This means that members have some protection if the business runs into trouble, compared to normal partnership rules where there is no limit on the members' liability if the business becomes insolvent.

Each member of the partnership must register as self employed, and is therefore subject to the same Income Tax and National Insurance class 2 and 4 system as a member of a standard partnership. The main difference is that the LLP must file accounts with Companies House.

Generally speaking, firms of accountants who wish to limit their professional negligence exposure use LLPs as limited companies cannot become auditors. For most businesses, a company limited by shares is generally the best entity to trade through when friends enter into business together. However, you must always seek professional advice before committing yourself to any business venture so please ensure you speak to your local TaxAssist Accountant before proceeding.

By Jo Nockels

Disclaimer: The information provided is based on current guidance (at date of publication) from HMRC and may be subject to change. Any advice shared here is intended to inform rather than advise. Taxpayer's circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this information, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.

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