Last editedOct 20212 min read
A limited liability partnership (LLP) allows business partners to work together without being legally responsible for their partner’s actions. There are many advantages to limited liability partnerships, which we will describe below. However, the types of businesses that can benefit from this arrangement are also quite limited.
How limited liability partnerships work
LLPs are fairly common, especially with accounting and legal firms, with two or more main partners. A company name such as Smith & Jones LLP will mean Smith cannot be sued or held legally accountable for anything that Jones does, and vice versa. This allows the partnership to spread the risk and if the partnership fails, then any creditors cannot go after either partner’s personal assets or income.
Exactly how every LLP works will depend on where, when and how they were created, but essentially they protect each individual partner’s personal assets. This is because the limited liability means only those assets included in the partnership itself – only these can be targeted by a lawsuit, although each partner can still be held accountable for any individual wrongdoing.
An LLP differs from a general partnership because the individuals or entities engaged in the latter can be held legally accountable for the actions of their partners. Their personal assets can also be targeted in lawsuits.
Limited liability partnership advantages
We’ve mentioned the legal advantage of the limited liability itself, but there are other benefits to LLPs that make them an attractive option for certain types of business.
Most LLPs consist of successful professionals who, as individuals, already have an impressive list of clients. By joining forces with someone of a similar ilk via an LLP, they can pool their resources and reduce operational costs. They can share an office space and use the same employees for similar tasks, massively reducing their costs from what they would be by operating on their own.
Another advantage that LLPs provide is the possibility to employ junior partners. These are salaried employees who are capable of carrying out the work of the senior partners, but have no stake or liability in the partnership. This allows the LLP to take on more clients, which would not be possible if the partners were the only ones capable of the big projects. This gives the partnership huge growth potential.
One more major advantage of an LLP is the flexibility of the partnership. Partners can come and go according to the partnership agreement. This means new partners who bring existing business with them can be introduced.
How to start a limited liability partnership
The first step in setting up an LLP is choosing a name, which cannot be the same as another registered company’s name, nor can it be too similar to another registered name.
Then you must register your business address, which will be your LLP’s official address and where all written communication will be sent. The address must be a physical address and in the same country that your LLP is registered in. This includes the separate nations of the UK, with a Scottish LLP requiring a physical address in Scotland, for example. You can use your home address as well, but beware that it will be publicly available.
You now finalise the registration of your LLP using approved software, paying the fee that the software charges for the service. Alternatively, you can download the LLP application form, fill it in and then send it by post. You can also use a formation agent to register your LLP for you, paying whatever fee they charge. Once the registration is processed, you will be sent a certificate of incorporation.
We Can Help
If you’re interested in finding out more about limited liability partnerships, or any other aspect of your business finances, then get in touch with our financial experts. Find out how GoCardless can help you with ad hoc payments or recurring payments.