Setting up and registering a limited liability partnership (LLP)
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| Introduction |
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| A limited liability partnership (LLP) is similar to a normal partnership, but also offers reduced personal responsibility for business debts. More like a company, rather than a regular partnership, the LLP itself - not the individual members - is responsible for any debts (unless individual members have personally guaranteed a loan to the business). |
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| LLPs are more tricker to set up than regular partnerships as they have to meet many of the same requirements as limited companies. LLPs are designed to be used by profit-making businesses. Non-profit making organisations are advised not to use this business structure. |
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| This article explains how to set up an LLP. |
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| The members of an LLP |
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| Any group of two or more people who want to set up a profit-making business together can form a limited liability partnership (LLP), unless one of them has previously been disqualified as a company director or LLP member. It is also possible for companies to be members of an LLP. |
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| An LLP must have at least two members, and at least two must be 'designated' members. |
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| The rights and responsibilities of LLP members |
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| The members of an LLP normally share in both the responsibilities of running the business and the profits. Exactly how their rights and responsibilities are defined and divided depends on the LLP's partnership agreement or 'deed of partnership'. Designated members have some extra responsibilities on in addition to those of ordinary members. |
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| The responsibilities of designated members |
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| Designated members have to ensure that the LLP meets various legal obligations. These include making sure that the annual accounts and returns are properly signed and delivered to Companies House. They are also responsible for appointing auditors if necessary, and they act for the LLP if it is wound up or dissolved. Designated members are legally accountable if they fail to carry out their duties properly. |
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| If the LLP does not specify any designated members when it registers, then all of its members will be treated as such. |
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| Limited Liability Partnership agreement |
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| A deed of partnership (or 'partnership agreement') is a legally binding agreement between the partners. It sets the terms under which the partnership will be run and the rights and responsibilities of the members themselves. |
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| If the members do not have a deed, they will be governed by the terms of the Limited Liability Partnerships Act 2000, which does not offer solutions to many of the problems that can arise. |
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| As well as giving basic information about the partnership, such as its business name and the names of the partners, the type of business and business address, the deed will usually set out: |
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- The amount of capital that each partner is to contribute to the business;
- The way in which profits or losses are shared between partners, and whether any of the partners should be paid a salary;
- Practical working arrangements, such as how much time each partner should contribute to the business, who does what management tasks and what type of decisions need collective agreement between the partners;
- Changes to the partnership, such as how new partners can be appointed and what happens if a partner dies or wishes to leave the partnership.
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| What does a new LLP need to do? |
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| When you set up you must contact your local HMRC office to let them know the business exists. HMRC will send a Partnership Tax Return, which must be filled in to show the partnership's income and expenses for the tax year. |
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| The partnership should appoint one of its members - the 'nominated member' - to fill in the Partnership Tax Return and return it to HMRC. The nominated member should also make sure that other members of the partnership are given copies of the Partnership Statement, to help them complete their own personal tax returns. |
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| Although the nominated member has responsibility for the Partnership Tax Return, all the members will be jointly liable for any penalties that result from it being submitted late or incorrectly. |
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| Checklist: setting up and registering a limited liability partnership (LLP) |
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| As well as registering your limited liability partnership (LLP) with Companies House, there are several other matters that need to be attended to. Be sure to: |
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- Send Companies House a completed and signed Incorporation Document - form LLIN01;
- Display your LLP's name on the outside of all its offices or other places of business;
- Display your LLP's name on all its business stationery, including letters, invoices, receipts and cheques;
- Show your LLP's place of registration, registered number and registered office address on all its business letters, order forms and electronic business communications;
- Check that you've received a Certificate of Incorporation from Companies House;
- Inform HM Revenue & Customs (HMRC);
- Send an annual tax return to HMRC;
- Send a set of accounts to Companies House every year;
- Send Companies House an annual return - form LLAR01 - in order to keep your LLP's records up to date;
- Inform Companies House of any changes to your LLP's membership, the personal details of its members or the address of its registered office.
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