A Limited Liability Partnership (LLP) is a partnership in which some or all partners have limited liability. It therefore exhibits elements of partnerships and corporations. In an LLP, one partner is not responsible or liable for another partner’s misconduct or negligence. This is an important difference from that of an unlimited partnership. In an LLP, some partners have a form of limited liability similar to that of the shareholders of a corporation. In some countries, an LLP must also have at ..
Salient features of an LLP
An LLP is a body corporate and legal entity separate from its partners. It has perpetual succession.
Being the separate legislation (i.e. LLP Act, 2008), the provisions of Indian Partnership Act, 1932 are not applicable to an LLP and it is regulated by the contractual agreement between the partners.
Every Limited Liability Partnership shall use the words “Limited Liability Partnership” or its acronym “LLP” as the last ..
Every LLP shall have at least two designated partners being individuals, at least one of them being resident in India and all the partners shall be the agent of the Limited Liability Partnership but not of other partners.
Limited Liability Partnership – LLP formations
Limited Liability Partnerships are often referred to in their abbreviated form as LLP’s. LLP’s were introduced in 2000 by the Partnerships Act 2000 to provide partnerships with the limited liability previously only available to companies. The LLP formation is popular when a ‘professional partnership’ would like the benefit of protected liability. This is particularly suited to accountants, solicitors, architects, consultants, surveyors and other fields of expertise where a partnership is preferred to a limited company. LLP’s may be suitable when the partners are members of an institute or individual earnings are clearly defined and not simply added to one pot and distributed by dividend. Within an LLP the earnings of the members is normally seen as personal income.
Benefits of an LLP
Disadvantages of an LLP
There are numerous benefits to be had from trading through an LLP –
- Limited liability protects the member’s personal assets from the liabilities of the business. LLP’s are a separate legal entity to the members.
- Flexibility. The operation of the partnership and distribution of profits is determined by written agreement between the members. This may allow for greater flexibility in the management of the business.
- The LLP is deemed to be a legal person. It can buy, rent, lease, own property, employ staff, enter into contracts, and be held accountable if necessary.
- Corporate ownership. LLP’s can appoint two companies as members of the LLP. In an LTD company at least one director must be a real person.
- Designate and non-designate members. You can operate the LLP with different levels of membership.
- Protecting the partnership name. By registering the LLP at Companies House you prevent another partnership or company from registering the same name.
This is not an exhaustive list but covers some of the key benefits on an LLP.
As with all formats of business there will be disadvantages as well as advantages. The following may be considered disadvantageous in some cases.
- Public disclosure is the main disadvantage of an LLP. Financial accounts have to be submitted to Companies House for the public record. The accounts may declare income of the members which they may not wish to be made public.
- Income is personal income and is taxed accordingly. There may be tax advantages in registering as a company, but this will depend on your personal circumstances.
- Profit can not be retained in the same way as a company limited by shares. This means all earned profit is effectively distributed with no flexibility to hold over profit to a future tax year.
- An LLP must have at least two members. If one member chooses to leave the partnership the LLP may have to be dissolved.
- Residential addresses were historically recorded at Companies House. Whilst the use of ‘service addresses’ now allows for home addresses to be kept out of public view, any address previously supplied to Companies House is still part of the public record unless you pay for the records to be suppressed. For many businesses this is not a problem. However, there are some examples where this may not be desired. Consider solicitors and partners of law firms that may not want their home address so freely available if their work involves sensitive cases.
This is not an exhaustive list but covers some of the key issues that some may feel are disadvantageous for an LLP.
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