Set up or convert to a limited liability partnership

When an LLP suits your business

An LLP is a body corporate, separate from its members. Members are not personally liable for its debts beyond what they put in, and every member can take part in running the business without losing that protection. For tax, a trading LLP is looked through: each member pays Income Tax and National Insurance on their share of the profits, as a partner would, whether or not they take the money out.

It is used most by professional firms and by businesses whose owners want to share management and profits flexibly. The trade-off is disclosure: an LLP files accounts and its members' details at Companies House, and those are public. A general partnership files nothing there. A limited company is taxed on its own profits, which may suit you better if you plan to keep profits in the business.

Register the LLP

You register an LLP with Companies House, online or on form LL IN01. You need a name ending in "limited liability partnership" or "LLP", a registered office address in the part of the UK where the LLP is registered, a registered email address, and the details of at least 2 members. Say which members are designated members, or that every member is one. Each individual member must verify their identity with Companies House. You also need details of anyone with significant control over the LLP.

Companies House tells HMRC about the new LLP, but each member still registers for Self Assessment as a partner.

Agree a members' agreement

The law does not require a members' agreement, but without one default rules apply. These include members sharing capital and profits equally and no member being expelled unless all the members have agreed a power to do so. A written agreement should cover capital, profit shares, drawings, decision-making, who the designated members are, admitting and removing members, and what happens when a member leaves, retires or dies.

Run the LLP

The designated members are responsible for sending the accounts and the confirmation statement to Companies House. They commit an offence if these are late, and there is an automatic penalty for late accounts. The LLP must tell Companies House within the deadline when a member joins or leaves or their details change. The nominated member files a partnership tax return for the LLP each year.

A member who is in practice an employee, for example one on a fixed salary with little say and little capital at risk, can be taxed as an employee under the salaried member rules. Check this before you bring in members on fixed-pay terms.

Convert an existing partnership

A partnership cannot simply re-register as an LLP. You set up the LLP, then transfer the business into it: its assets, contracts, leases, staff and VAT registration. Plan the order with your accountant and solicitor, and tell your customers, suppliers, bank and any regulator before the transfer date.