Limited liability partnerships (LLPs) bear some characteristics of both a company and an unincorporated business. The similarities with limited companies include their registration and regulation by Companies House and their requirement to have a UK registered office address.
The means by which limited liability partnerships are taxed are more closely associated with both sole traders and partnerships.
Some businesses which have traditionally been partnerships such as solicitors and accountants have in recent years changed their status to an LLP. The primary purpose of such a move is to limit the personal exposure of the partner’s personal wealth to the fortunes of the business.
When starting a business as a LLP the facilities to incorporate the business electronically do not currently exist. Submission to Companies House via paper is the only manner in which a registration of a limited liability partnership can occur.
A more detailed analysis of this type of business vehicle can be given by considering its advantages and disadvantages.
Advantages
Similar to most UK companies, a limited liability partnership provides the owners with restricted exposure to the business’ debts. Their personal assets are ring-fenced away from the liabilities of the venture.
It should be noted however that in reality most lenders will insist of personal guarantees in the event that the money they are injecting is not sufficiently covered by the assets of the business.
This might then negate substantial benefits which were initially thought to be part of the LLP business structure.
Due to the fact that limited liability partnerships are regulated in part by Companies House, there might be some perception that the business is of a more substantial nature compared to that of a traditional partnership or a sole trader.
Disadvantages
LLPs are taxed in that same way as sole traders and traditional partnerships and therefore do not take in to effect working profits retained to sustain the business’ working capital. The effects of these are similar to those highlighted for sole traders.
The limited liability shield might result in trade suppliers being less willing to provide extended credit to this type of business. They might perceive that whilst the partner’s exposure has reduced by adopting this particular business vehicle, this has been at the expense of their own.
Should the business fail and own them money, there would be no immediate remedy available to them as far as the partner’s personal wealth is concerned.
At the inception of a limited liability partnership a registration fee is payable to Companies House. Although this fee is not substantial, it is an additional cost over and above that required when starting the new venture as an unincorporated business.
The registration of an LLP does not reduce the need for a comprehensive partnership deed.
