A limited liability partnership (LLP) is the perfect choice if you're looking for the protection of limited liability combined with the flexibility of operating as a partnership. Limited Liability Partnerships have been around since 2001 and offer greater freedom in terms of allocating profits, ease of membership, and confidentiality of internal organisational arrangements. They are also taxed differently from companies. Subject to certain anti-avoidance rules, the general position is that members of an LLP are taxed on their share of the LLP's income or gains in the same way as if they were members of a general partnership.
Aside from the tax considerations, here are three reasons why an LLP might be right for your business:
1) Allocating specific rights for specific partners
One major advantage to an LLP is that it can provide greater flexibility than a limited company in relation to the allocation of profits. In a limited company, all shares of the same class must all have a dividend declared at the same level. Changing it is not an easy or straightforward process. However, an LLP agreement more conveniently offers owners of an LLP the ability to specify what happens to the profit. An LLP Agreement may specify fixed profit shares or enable a variation in allocation, of income profits and/or capital profits, between members, and allow for distinctions in percentages of profits payable to different members for different years. Members of an LLP have much greater freedom to decide where profits go, whilst benefitting from limited liability for the LLP's debts.
2) Ease of membership
In an LLP it is often easy for the partners to make changes to the membership. The internal flexibility of LLPs allows participation in management. Whilst all members must be registered at Companies House, the LLP agreement may provide that members can join or leave an LLP with the minimum of formalities, if desired. This allows for a quick turnover of members and new members can be taken on as the business grows, with all individuals protected by limited liability should the LLP come into financial difficulty. An LLP agreement can specify whatever joining procedures are considered by the members to be appropriate for the nature and complexity of their LLP.
3) Confidentiality
Whilst standard limited companies must file their articles of association at Companies House, which are then in the public domain, the members of an LLP are free to define their relationship within a confidential members' agreement. The agreement may specify whatever decision-making procedures the members consider suitable for the size and nature of the LLP's business. If avoiding a restrictive, rigid internal business structure is an appealing prospect then an LLP might be for you.
With the greater level of confidentiality, ease of membership, and ability to allocate profits more easily, Limited Liability Partnerships offer a greater degree of flexibility as compared to a standard limited company.
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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
