If you’re considering starting a business in the UK, you may want to explore the option of forming a Limited Liability Partnership (LLP). LLP incorporation offers several advantages, including shared responsibility and tax benefits.
In this comprehensive guide, we will walk you through the process of incorporating an LLP, step by step.
Step 1: Choose a Name
The first step in LLP incorporation is selecting a suitable name for your partnership. Keep in mind that your chosen name must end with ‘Limited Liability Partnership’ or ‘LLP.’ It’s crucial to ensure that your selected name is unique and not too similar to existing registered company names.
You can check the Companies House register to verify name availability.
Step 2: Registered Address
Your LLP needs a registered address, which will be publicly available. This address is essential for official correspondence. It must be a physical address located in the same country where your LLP is registered. You can use your home address but be aware that it will be publicly visible.
Step 3: Choose Designated Members
An LLP must have at least two designated members, but you can have more if needed. Designated members have additional responsibilities, such as keeping LLP accounts. Ordinary members can also be a part of your LLP.
Step 4: Create an LLP Agreement
To run your LLP smoothly, it’s recommended to establish an LLP agreement that outlines how the partnership will operate.
This agreement covers profit sharing, decision-making processes, members’ responsibilities, and procedures for adding or removing members. You can draft your own agreement or seek legal assistance.
Step 5: Register with Companies House
Once you’ve completed the previous steps, it’s time to register your LLP with Companies House. You have several options for registration:
Register Electronically: Use third-party software for a convenient and quick registration process. It typically takes 24 hours, and if you apply before 3 pm, you can even get same-day registration by paying a higher fee.
Register by Post: You can download the LLP registration application form and send it by mail. This process may take up to 5 days.
Use a Formation Agent: Consider employing a formation agent to handle the registration process for you. The cost will vary depending on the agent.
Step 6: Members’ Responsibilities
All LLP members must fulfil their duties and legal responsibilities as outlined in the LLP agreement. Every member should register for Self-Assessment with HM Revenue and Customs (HMRC).
Designated members have additional responsibilities, including:
- Registering the business for Self-Assessment with HMRC.
- Registering for VAT if your business expects sales exceeding £85,000 annually.
- Appointing an auditor if required.
- Maintaining accounting records.
- Preparing, signing, and submitting annual accounts to Companies House.
- Submitting a confirmation statement (previously annual return) to Companies House.
Step 7: Reporting Changes
It’s crucial to keep Companies House informed about any changes to your LLP. You must report changes related to the registered or alternative address, members’ details (such as name or address), or registered name promptly.
Depending on the type of change, you can use online services, download forms, or employ an agent to handle these updates.
Explore our complete guide on “Incorporating a new company in the UK“. Read now for expert insights and step-by-step instructions.
Comparing LLP and Limited Liability Company (Ltd)
When considering the best legal structure for your business in the UK, you may wonder whether to opt for a Limited Liability Partnership (LLP) or a Limited Liability Company (Ltd).
Both offer certain advantages and disadvantages, and understanding their differences is essential.
Below, we compare LLPs and Ltd companies to help you make an informed decision.
Limited Liability Partnership (LLP)
Pros
- Flexibility: LLPs offer flexibility in their members’ agreement, allowing partners to define their roles, responsibilities, and profit-sharing arrangements.
- Combined Advantages: LLPs combine the advantages of a limited company and a partnership. Members enjoy limited liability protection, similar to shareholders in a company, while retaining the flexibility and tax treatment of a partnership.
Cons
- Income Disclosure: Each member of an LLP must register with HMRC as self-employed, which means they are required to disclose their income for tax purposes.
- Trading Start Requirement: An LLP must start trading within a year of registration, or it may be struck off the register.
Limited Liability Company (Ltd)
Pros
- Limited Personal Financial Exposure: Shareholders of a limited company (Ltd) are liable for the company’s debts only to the extent of their invested capital. Their personal assets are protected in case of company insolvency.
- Limited Liability Protection: Limited companies provide strong liability protection for their owners, ensuring that their personal finances are separate from the company’s finances.
Cons
- Setup Costs: Incorporating a limited company involves certain setup costs, including registration fees and administrative expenses.
- Public Financial Reporting: Limited companies are required to submit annual accounts and financial reports to Companies House, making certain financial information publicly available.
LLP vs. Limited Company
Choosing between an LLP and a limited company depends on your business’s specific needs and preferences:
LLP may be preferable if:
- You value flexibility in defining partnership roles and profit-sharing.
- You want the combined advantages of limited liability and partnership taxation.
- You are willing to register with HMRC as self-employed and disclose income.
Limited Company (Ltd) may be preferable if:
- You seek strong personal asset protection against business debts.
- You are comfortable with the associated setup costs.
- You don’t mind the requirement to submit annual financial reports to the public domain.
Therefore, both LLPs and limited companies offer unique advantages and drawbacks. It’s essential to assess your business’s specific requirements and consult with legal and financial professionals if necessary to make the right choice for your venture.
Conclusion
In the UK, choosing the right legal structure for your business is a pivotal decision that can significantly impact your operations, responsibilities, and liabilities.
Limited Liability Partnerships (LLPs) and Limited Liability Companies (Ltd) are two common options, each with its own set of advantages and disadvantages.
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