From 5 April 2001 businesses wanting to limit their liability have been able to arrange themselves as a limited liability partnership (LLP) as an alternative to forming a limited company. LLPs came into force as a result of pressure from professional firms who wanted the protection of limited liability whilst retaining the tax benefits and traditional structure of a partnership.
Legally LLP’s are recognised as ’bodies corporate’ and are subject to most aspects of company law. Unlike directors of a limited company, provided the partnership operates with a view to making a profit, the members of the LLP are treated as though they were carrying on a business in partnership for the purposes of Income Tax, Corporation Tax and Capital Gains Tax.
Requirements of an LLP
For those transferring from an existing partnership into an LLP the transfer is tax-neutral. It is not possible to convert an existing partnership into an LLP; instead, an LLP should be formed and the business and assets should be transferred from the old partnership as a going concern. The old partnership can then be dissolved if no longer required.
Unlike a limited company which is taxed in it’s own right, an LLP is taxed as though it were a non-limited liability partnership in that the members are taxed on their share of the partnership profits as set out by the partnership agreement. They are also subject to Class 2 and Class 4 NIC in the same way as a partner in a partnership. Should an LLP cease to operate with the view to make a profit it is possible that it would become liable for tax in it’s own right as though it were a company.
For more information please visit:
HMRC – http://www.hmrc.gov.uk/bulletins/tb50.htm#2
Companies House – http://www.companieshouse.gov.uk/about/pdf/gbllp2.pdf