Limited liability partnerships are quite common in the business world. You may even deal with a few yourself without really noticing it. Take a stroll around any town centre and you will find a few business nameplates and plaques displaying the acronym LLP after their lists of names, usually accountants and solicitors who have teamed up to share their skills in a partnership.
Two Heads are better than One
Generally speaking, a limited liability partnership is usually set up between two or more mutually understanding people with and aim to pooling skills and resources to create a 'for-profit' business. Or to put it more simply, two or more people working together to make money. Some partnerships can be quite relaxed and informal, especially when the partnership is made up of close friends or family members with a shared interest.
The informal nature of a general partnership can have its pitfalls. Unless you have a formal written agreement drawn up between the partners that outlines the roles, responsibilities and liabilities of the partners, there could be issues arising if the business runs into difficulties. If something serious should happen, for example if the company runs into a financial crisis, then all partners will share the liability to pay back creditors all the debt that is outstanding.
To be on the safe side, many partners will set up a company formation to become either a limited liability company (LLC), or a more formal limited liability partnership (LLP). With an LLC, the company will stand as a business in its own right, and will assume all the liability for any financial losses rather than the individual partners themselves. This would protect their personal assets from being swallowed up by creditors.
Why should we choose an LLP?
With some professions it is more preferable to create a company formation that is a bit more specific and customised than a standard LLC. The LLP offers a more formal structure that will require written partnership agreements that spells out exactly what responsibilities each partner will take on. Each partner can participate in the management of the company, and this can be particularly useful when each person has a specific skill set, knowledge or experience they can bring to the role. A great balance can be struck between a members of an LLP that results in a very productive and profitable structure.
You often see legal professionals choose to set up LLPs because these sorts of business heavily rely on building a good reputation. For example, a team of solicitors who have a lot of prior experience, and who have built up a solid list of clients over the years can pool their resources under one roof, and therefore lower the costs of doing business as well as continue to grow their professional reputation in the local area. By sharing business premises and employees, the LLP can grow more profitable together than if they were working individually.
An LLP may also employ staff that one day may want to become a partner themselves. They may be called junior partners or associates, but in reality they have no share of the LLP. In other words, an LLP can take on employees that don't have to become part of the limited liability partnership.
However, one of the main advantages of forming an LLP is having the ability to bring in new partners as and when needed. You can also release registered partners too, so if one partner wished to retire for example, they can be written out of the partnership as outlined within your agreement.
This can be a very useful thing if you want to attract a new partner into your company who can bring with them a list of existing clients or business contacts. The decision to accept a new partner into the fold is usually approved by all partners. It is this flexibility that allows an LLP to be a better choice for some businesses over a regular limited liability company.
It is really very easy and straightforward to set up an LLP online, especially through Your Company Formations who have an expert team that specialise in online Limited company formation. We provide a wide range of formation services on a variety of different company types which include, limited companies (companies limited by shares), companies limited by guarantee and Limited Liability partnerships. As a registered eFiling agent, we are authorised by Companies House as an official company formation agent. You can set up your limited liability partnership with us very quickly, in most cases you can register your partnership in a little over five minutes through our online formation system. It is one of the simplest ways to incorporate a new company inside the UK.
How is this formation a Limited Liability?
Just like a regular limited liability company, any losses incurred will happen to the partnership or company rather than to the personal assets of the individuals outside of it. The partnership becomes its own legal entity, and therefore will become the target of any law suits against it. The only way an individual partner can become liable is if he or she has personally done something wrong, such as committed fraud or wrongful trading. The protection that a limited liability partnership offers will also extend to protect the named partners from the wrongdoings or negligence of another partner.
Upcoming changes in 2016
As from the beginning of April 2016, incorporated companies and LLPs in the UK will need to keep a 'PSC Register' and make disclosures in respect of the persons having major control over them. The new PSC register will be publicly available, and will identify the individuals who are the main beneficial owners of the company. This step is to help with improving corporate transparency and act as a method of curbing criminal activities such as tax evasion and money laundering.
Normally all UK based incorporated companies and LLPs have been required to stick to a greater level of transparency than companies in other forms, with yearly accounts and shareholders information being filed with Companies House. But the new PSC laws include corresponding measures from the European Union’s Fourth Money Laundering Directive. This is a Europe wide rule that is set to be adopted by all member states before June 2017.
This means there will be an obligation on all UK Companies to Identify PSCs, and they will be required to take reasonable steps to identify persons with significant control over the company or LLP. The new PSC laws are principally contained in Part 21A of the Companies Act 2006. This ca n be defined as someone who meets one or more of the following PSC Criteria:
holding, directly or indirectly, more than 25% of the shares;
holding, directly or indirectly, more than 25% of the voting rights;
holding, directly or indirectly, the right to appoint or remove a majority of the board of directors;
having the right to exercise, or actually exercising, significant influence or control over the company; and/or
having the right to exercise, or actually exercising, significant influence or control over a trust or firm which is not a legal entity and meets any of the above conditions.
The register must list personal information of a PSC, including their name, residential and service address, date of birth and nationality, regardless of whether they are a resident in the UK or live overseas. It must also include a detailed description of the nature of control exercised and the date the person became a PSC. The register should be kept at the company's registered office from the beginning of June 2016. The information held about the company’s PSCs will need to be submitted as part of the return filed annually by UK Companies at Companies House.
Those people who would not normally be considered under the PSC criteria are those directors, advisors, consultants and employees and financiers who only have a financial or commercial link or relationship with the company.