If a partnership is an appealing business structure but the prospect of unlimited liability for business debts is unsuitable for your business, you may choose to set up (‘incorporate’) a limited liability partnership (LLP).

An LLP has what is known as separate legal personality, which means that it can do anything an individual can do (e.g., hold property, enter into contracts, sue and be sued). Importantly, in an LLP, the partners (‘members’) have limited liability. This means that their liability for the debts of the partnership is generally limited to the amount they agree to contribute, if such agreement is made.

Like a partnership, an LLP has a great deal of freedom over how to regulate internal affairs and decision-making. Unlike a partnership, a change in membership does not affect the continued existence of an LLP.

How to set up an LLP

The key requirements to incorporate an LLP are as follows:

• Choose a name – the name of an LLP must end in ‘Limited Liability Partnership’ or ‘LLP’. The name must not be too similar to the name of another registered company or LLP. You can check the Companies House name availability checker to see if the chosen name is available. You may also wish to check here to ensure the name is not covered by an existing trademark.
• Have a registered address – this is where official communications will be sent. It must be a physical address in the same country as the one in which your LLP is registered. You can use your home address but note that the registered address will be publicly available.
• Have at least two ‘designated members’ – these are members who have specific responsibilities including keeping company accounts.
• Register the LLP with Companies House – to register you will need to submit the application form and appropriate fee either by post, online or via an agent. You can get your LLP registered on the same day if you apply before 3pm and pay a higher fee. A certificate of incorporation will be issued by Companies House. This is conclusive evidence that the LLP has been properly formed.

Rights and responsibilities of members

The rights and responsibilities of members are governed by the LLP agreement. Having an LLP agreement is not a requirement but it is recommended. The LLP agreement is confidential to the members and does not have to be filed at Companies House. If there is no LLP agreement, default provisions will be implied into the LLP by statute (e.g., with regard to admission and termination of membership).

The LLP agreement should cover:

• Profit-sharing amongst the members;
• Decision-making processes;
• Responsibilities of each member; and
• How members can join or leave the LLP.

Tax considerations

The designated members must register the business for self-assessment for tax with HMRC. It may also be necessary to register for VAT.