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What is an LLP? The ultimate guide for tradespeople

You may already have a partner you’re wanting to go into business with. Or you may be looking for one in the near future. Either way, it’s worth taking the time to check you’re both on the same page before going into business.

Successful limited liability partnerships (LLPs) enable successful collaboration. They can help you achieve long-term goals and get your business off to a flying start.

However, there are pros and cons to a limited liability partnership. It’s important to be aware of them before you move forward.

As with any important decision, you should consider all your options first and research thoroughly before arriving at a decision.

That’s why we’ve put together this guide for everything you need to know about LLPs before taking the plunge and entering into a partnership.

What is an LLP?

One of the different forms of business structure, a limited liability partnership is a joint venture business. This means it has at least two designated members. That could be individuals, but an LLP could also be a company and an individual joining together.

Each partnership member is responsible for paying taxes. This is on their share of the profits, in addition to any other personal taxes they need to pay.

The individual members are not personally responsible for any debts – hence the name ‘limited liability’.

How to compare LLP vs Ltd

Limited companies are limited by shares or guarantees and pay corporation tax on all profits.

They also have a registered UK address and bank account, are able to sell shares for profit and can pay investors a dividend. You can set it up as an individual, naming yourself as a director and major shareholder.

Meanwhile, a limited liability partnership must be set up by at least two people. The limit of a partner’s liability in an LLP will be agreed upon between them.

The structure of a partnership is flexible and can be changed at any time.

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How to set up a limited liability partnership

Setting up a limited liability partnership is a fairly straightforward process. You’ll need to:

  • Choose a name

The name can be anything you like, but it must end in LLP. Make sure it’s unique and check it hasn’t been used before by using the Companies House name search tool.

  • Have a single registered address

This can be a home address or shared premises. Keep in mind that the address will be publicly available.

  • Have at least two designated members

LLP members can be two individuals who agree to work together, or it could be an individual and a company.

  • Create an LLP agreement

This will set out how the partnership is structured and how it will be run.

  • Register the LLP with Companies House

This formalises the agreement and will make the partnership legally binding.

Once you’ve completed all these steps, your partnership has been established according to the law. You can find a full list of rules and regulations about setting up an LLP on the government’s website. Be sure to read them as they differ from setting up a limited company.

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UK limited liability partnership advantages and disadvantages

By setting up an LLP, you become entitled to all the benefits of a partnership. An LLP is a formal and legally binding agreement that provides a solid base for growing a business.

Pooling together resources between partners means that you can:

  • Reduce overheads
  • Reduce ongoing costs

By sharing between the two of you, insurance, accountancy, and office costs are all lower.

As well as expenses, you share the management of the partnership and its future direction. You’ll get to bounce ideas off one another and consult when it comes to making important decisions for the business.

Together, you’ll be able to look out for and take on larger pieces of work – ultimately helping your business to grow.

Resolving issues

If you run into trouble in an LLP partnership, your roles and responsibilities are clear. This makes dispute resolution a simpler process.

If the partnership fails or you run into financial trouble, your assets remain protected.

Working together may also mean you can branch into new lines of work or projects by combining your skills.

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Sharing responsibilities

That said, keep in mind there may be some downsides to a partnership. You’re together through the good and bad.

  • When business is good, you’re able to share the workload
  • When business isn’t doing well, you’ll still have to share profits, which can mean less pay through lean periods

An also running an LLP can involve more paperwork and higher running costs when compared to a sole trader setup.

Finally, should the partnership fail for any reason, there are legal hoops you’ll have to jump through. Although possible, it can be a time-consuming and costly process.

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How are LLPs taxed in the UK?

The main disadvantage of an LLP in the UK is that it can be less tax-efficient if you want to employ lots of people.

The income is still personal income and will be taxed as such. Tax can be higher than what you’d pay as a Ltd company and profits cannot be gained in the same way.

As a partnership, each member is responsible for paying taxes on their share of profits and any other personal taxes they are required to pay.

Is an LLP right for you?

As you can see, it’s important to carefully consider being a LLP before committing to it.

You may find that being a sole trader or limited company is better suited for your vision.

Remember:

  • Working with a partner requires clear communication from the get-go
  • You need to share your vision of the company’s future
  • Ensure that you both have the same plans for your shared business
  • Without shared ideals, things can become tricky early on.

As with any relationship, partnerships can be complicated. But when they work, they can transform the way you both operate for the better.

LLPs – A quick summary

This article has given you tips on how to set up a limited liability partnership (LLP), including registration, designating members and more. But before you start setting up your LLP, it’s important to reflect on the pros and cons.

On the one hand:

  • Your business can benefit from shared management responsibilities
  • There is mutual support within an LLP structure
  • You need to move together with purpose

However, there can also be:

  • Increased paperwork
  • Higher running costs
  • The necessity for exceptionally clear communication
  • A lack of shared vision

Take your time to consider what would work best for your business. Undertake careful research to help you make an informed decision.

Whatever form of business structure you choose, when setting out, or expanding, it is so important to set out goals and strategies in your business plan.

Not sure how to put one together, no worries! We’ve got a handy template to help you on your way.

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Content disclaimer: This content has been created for general information purposes and should not be taken as formal advice. Read our full disclaimer here.

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