A partnership in which all partners or some partners have limited financial liability is termed as a Limited Liability Partnership. The liability of these partners is restricted to the amount they have contributed to the partnership. Hence it is capable of exhibiting characteristics of both a corporation and a partnership. In a Limited Liability Partnership, none of the partners is responsible for each other’s negligence or misconduct. The Limited Liability feature of an LLP is similar to that of a corporation’s shareholders; however, unlike corporate shareholders partners in a Limited Liability Partnership format hold the right to directly manage the business. In the UK an LLP in spite of the name is specifically legislated as a corporate body rather than a partnership.
Facts about Limited Liability Partnerships
Some key factors about LLPs that you should know are as follows:
- In an LLP there are no directors, shareholders and no shares.
- An LLP must have a registered name and an office address in the country of its incorporation.
- Confirmation Statement and Annual accounts must be delivered to the Companies House every year.
- Each member’s limit to liability is mutually agreed between all members and layed out in a partnership agreement.
- An LLP must mandatorily maintain a People of Significant Control (PSC) Register.
- An LLP must comprise of a minimum two designated members who take up additional responsibilities on behalf of the LLP and the rest of its members.
- It can only be set up for a profit-making business, and it cannot be utilized for nonprofit charities or enterprises.
Some of the significant and worth knowing advantages of a Limited Liability Partnership are as follows:
- Flexibility is one of the significant features of a Limited Liability Partnerships. Each partner has the liberty to decide the extent of his/ her participation and monetary contribution. The distribution of profits and the operation of the partnership is determined by a written agreement between members of LLP. This facilitates higher flexibility regarding business management.
- Limited Liability shields the personal assets of the member’s from the liabilities of the business. This is possible because a Limited Liability Partnership is a separate legal entity distinct of its members.
- Another benefit of incorporating a Limited Liability Partnership is that an LLP does not need to file taxes as a business, which is a great relief. However, each member of an LLP must file all the necessary tax forms associated with the business.
- There is no higher limit on the number of owners that can be involved with a Limited Liability Partnership. Hence a Limited Liability Partnership with a fairly large number of owners has the liability of the business spread out evenly.
- An LLP is a separate legal entity. Hence it can enter into contracts, employ staff, and own property. It continues to exist even if owners resign dies or go bankrupt.
Even though this list is not an exhaustive list of the advantages of a Limited Liability Partnership, however, it covers significant benefits of the same.
- One of the main shortcomings of a Limited Liability Partnership is public disclosure. All Financial accounts of an LLP must be submitted to the Companies house as a public record. Hence an LLP’s trading position and financial condition cannot be kept private.
- The creation of a Limited Liability Partnership is far costlier, and complex when compared to other forms of partnership. The Accounting and Administration cost is also comparatively higher because of the additional requirements.
- Each LLP must comprise a minimum of two members, so if one of the members decides to leave the LLP has to be dissolved.
- A Limited Liability Partnership has low business credibility in comparison to corporations.
Before considering incorporating an LLP enhance your understanding of a Limited Liability partnership with the above information and make an informed decision. It is necessary that you access every single detail before making a wise decision. Hopefully, this article will help you derive at a desirable conclusion.