The category “partnership” offers a lot of formats and interpretations. Along with conservative types, innovative ways of establishing strong ties are gradually spreading among businessmen. In 2001, alternative cooperation with limited liability appeared. Both professionals and beginning entrepreneurs apply it.
What is Limited Liability Partnership?
By LLP mean such business structure for effective interaction in the team with a small number of employees. At the same time, each of workers invests certain resources and efforts in the common deal, receiving corresponding profits.
It is quite often used by persons who do not have the opportunity to work as law firms because of restrictions on the part of professional associations. We are talking about doctors, auditors, artists, as well as family trade, considering similar kind of relationship in the role of fruitful model for attracting investment.
An akin form of cooperation is resorted to in the presence of a high degree of risk or the possibility of economic collapse. The reason lies in the flexible management system and limitation of financial damage to business owners. Your partnership could be registered online within 3 hours.
Limited Liability Partnership Advantages and Disadvantages
Except for restricted financial responsibility, among LLP advantages, is the existence of official status, general legal capacity, ability to contract and own property. It is significant that a maximum number of members is not established for such type of relationships. This means even one person may register commerce.
Once again, it is worth mentioning a key benefit. Debt liability of each partner depends only on the amount invested by him or her. I.e. all personal monetary savings are not at risk of confiscation by law enforcement agencies, of course, if there is no evidence of wrongful acts.
Restrained ties may enter into the treaty on its behalf, buy, sell and rent property, act as a plaintiff and defendant in court, or hire staff. In practice, LLP form could be used both for trading activities and for rendering various types of professional services like accounting, audit, etc.
Similar systems do not need statutes and general meetings. As a rule, participants independently determine the mode of operation and adjust it according to the workflow. Revenues are distributed among the company’s members, depending on the established interest rate. Individual taxation provides transparency in making a profit.
A key LLP disadvantage is that it is used only for income, which reduces chances of creating such ties for non-profit or charitable purposes. Another significant difference of LLP is the relations between members are very weak and are not sufficiently regulated by law. Therefore, they must be defined in a specially limited liability partnership agreement. It is not registered anywhere and is, in fact, a private contract. Nevertheless, it is necessary to ensure internal stability of new enterprise.
What is the Liability of an LLP?
Traditionally limited liability means a kind of financial protection, which significantly reduces the amount of money for each of the members in the event of the firm's loans obligations. Their share of debt depends on the invested capital. Besides, personal status of participants is reliably protected by law.
That's why a lot of businessmen choose this kind of relationship. Unlike traditional cooperation with an equal share of responsibility, playfellows here do not bear the whole burden of claims from third parties. So, limited liability is a major advantage of a partnership as compared to a corporation.
Limitations on Protection for LLP Partners
The key playfellows in a limited liability partnership, besides functions of the founders, perform other administrative duties. The latter include:
- Compiling of financial statements
- Preparation for registration for VAT
- Responding to any changes in the composition of shareholders
- Maintenance of registers, including PSC
- Presentation of partnership in courts
- Control over compliance with legislation
In addition, each of the members of the association is demanded to enroll in the HMRC system for the payment of income tax and insurance, taking into account own personal profit. Members are required to keep records that accurately describe the scope of their work. The partnership itself needs registration if its annual turnover exceeds the threshold of £ 85,000. The amount is valid for 2018.
Innovations were introduced, allowing treating some “employees” as active taxpayers. They should have a significant influence on decision-making, additional income bypassing the cooperation or invest more than 25% of their salary in the company. Most likely, these rules will affect a lot of the limited liability companies, since the senior partners correspond to the three specified conditions.
Difference between Limited Partnership and Limited Liability Partnership
Proprietors of private firms with the above-indicated forms of relations are required to register their “offsprings” in the Companies House in accordance with the law. Among their general characteristics, one may note “marginal” responsibility of pards and financial statements.
But there are differences. First of all, they concern issues of management and taxation. In companies of LP, involvement in decision making may be restrained to quotas and other non-commercial assets. In such structures, the presence of at least one guarantor and director is assumed.
Note that your firm must be registered at an office address and pay a corporate tax on all proceeds. As a leader, you should submit annual financial reports as relevant declarations annually. Members claim to get their share of payments in the form of dividends. At the same time, the scope of their powers depends on the number and value of their stocks.
As for the limited liability partnership, it is formed exclusively on a commercial basis. This means you will not be able to use own company as a charitable foundation. To start such relationship requires the presence of minimum two individuals. Some pards could take on additional legal duties on behalf of the whole partnership.
LLP does not provide for shareholders or head. Also, it does not pay a general corporate charge, as each of the participants is taxed. Annually a company is obliged to provide financial balance sheets to Companies House. The part of players’ accountability is described in the contract, which also outlines their rights and responsibilities. Such systems do not have shares held for sale.
Key Difference between General Partnership and LLP
A dominant contrast consists in a level of financial accountability of playfellows. If the general format of relations provides for an equal distribution of the firm's debt obligations, LLP varies their shares depending on the position of each of the shareholders. This explains the popularity of the mentioned kind of cooperation. It is about the existence of so-called protection for owners of limited firms. So, each partner's risk of losing personal assets is minimal.
The appearance of LLP allowed increasing profit by reducing financial risks. Concurrent, an internal structure of company remains flexible concerning management, paying taxes and attracting third parties if necessary. Unlike conventional partnerships, LLP could independently contract and own property. In addition, it continues to exist regardless of changes in the composition of members. It is not necessary to have a restrained number of people acting on behalf of other partners or the firm as a whole. Each participant acts as an agent of the association.
Thus, an LLP could be a very convenient organizational and legal form, because it combines protection of members in the form of limitation of their charge with an ability to act and taxed as a whole firm.