Should I Start or Join a Limited Liability Partnership (LLP)?

Thinking of starting a business or trade?  Where do you start?  Do you know the differences between Self Employed Sole Traders, Partnerships and Limited Companies?  We will tackle all 3 options but let’s look at how you set up a business via limited liability partnership.

Firstly, there are two types of business partnership:  The traditional Partnership and a Limited Liability Partnership (LLP).  In this video, we explore the newer Limited Liability Partnership (LLP).

• Traditional ‘old-style’ Partnerships, think of these as being self-employed but working in common, with common business/trade goals with one of more other, likeminded self-employed people.  Each partner is self-employed because partners cannot ‘employ’ themselves.  Partnerships are personal businesses, each partner entitled to their share of profits but equally, their share of debts and a partner’s personal wealth outside the business is open to partnership creditors.
• This can limit the growth of a partnership as it may limit what ‘debt’ liabilities are taken on to grow/sustain the business
• Newer Limited Liability Partnerships (LLPs) are where the liabilities of the partnership are limited to the assets within the partnership.  Personal assets are not at risk.
• By having each partner’s personal assets protected as there is limited liability for the partnership, this may encourage partners to expand by taking on more debt without concerns that their personal assets are at risk if the firm fails.
• It may encourage partnerships to expand to become a much larger partnership employing hundreds of people without worries that if it fails, they are personally liable.
• The LLP has a ‘legal identity’ and must be registered with Companies House.

Two Types of Partners

• Ordinary Partners are partners entitled to less than 20% of partnership share profits.
• Ordinary partners are usually employees of the LLP and offered a % share of partnership profits as an incentive.  This is designed to retain skilled, high fee earning staff and encourage efficient business activities to promote growth, profit, and sustainability. 
• You may have heard the term “I have been made up to partner”.
• Designated Partners are those partners entitled to 20% or more of partnership share profits.
• Designated partners have additional duties such as filing requirements with Companies House, HMRC, bookkeeping, VAT returns etc.
• Designated partners are like a traditional partnership in that they are deemed ‘self employed’ and complete self assessment returns as self employed for income tax and national insurance contributions but without the liability of a normal, traditional partnership.

Pros and Cons of LLP

• The obvious advantage is the limited liability position when/if the business grows bigger with larger liabilities unlike a traditional partnership.
• There is more paperwork to complete for an LLP.
• An LLP cannot raise capital based upon its ‘share value’ as it is not a Limited Company and therefore does not have authorised and issued share capital that can be bought/sold/valued. 

In addition, as Designated Partners are ‘Self Employed’ partners, the usual pros and cons of self employment and traditional partnerships apply.

See: Should I Go Self Employed?  Should I Go Traditional Partnership?  as well as Should I Go Ltd Company?  S/E v Ltd Co.  Take Home Pay

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