04 Nov What is an LLP? and what are advantages & disadvantages
Do you know what is LLP (Limited Liability Partnership)? An LLP is like an ordinary partnership in that many people or limited companies join together and share the costs, risks, and responsibilities of the business. They also take a share of the profits and pay income tax and NICs on their share of the partnership profits.
An LLP differs from an ordinary partnership in that its debt is usually limited to the amount of money. Each partner invested in the business. Moreover, For any personal assurances provided to collect financing for companies. Members have some cover while the company is in danger. Thus, their responsibility reduced in general terms to the level of their investment.
So, what limited liability partnership advantages and disadvantages do a trading vehicle offer?
Advantages of an LLP
Limited liability partnership advantages are not limited. Along similar lines to a company, an LLP is a separate legal person. This means that the members are not liable for the LLP’s debts. Thus, all contracts are between the LLP and its clients or third parties. If the LLP is insolvent, the personal responsibility of a member is limited to the amount of their negotiated allocation of capital. Plus the value of any personal guarantee. Where negligence involves, members may be liable to the full extent of their assets. If they have assumed personal responsibility for the advice or work.
The separate legal entity status also means that there is no need. For example, to transfer legal title to the property on a change of membership. Advantages of LLPs also have an unlimited capacity which can enter into contracts and hold property in the same way as an individual.
Members of the LLP are usually taxed as if they were partners and not employees or directors. They are not liable to pay PAYE or Class 1 NICs. Businesses often find it easier to recruit new members to an LLP than to an ordinary partnership. The possibility of limitless liability for future partners may be a significant disincentive.
Disadvantages of LLP
Limited liability advantages combined with favorable tax treatment will not be below average as compared to the advantages of limited liability partnership. They do come at a price, most of the associated disclosure obligations.
Where the LLP’s profit before members’ payment exceeds £200,000. There is a needs to report the amount of profit attributable to the highest-paid member (but not their name). Other disclosure includes total members’ payment. total members, average members’ payment, and related party transactions.
There will be costs to set up the LLP and ongoing filing fees. The administrative costs in notifying clients, suppliers & transferring bank accounts. The leases and agreements will need to be considered in transferring accounts.
Corporate-type accounts have to be prepare. which circulates to each member and filed on a public register within nine months of its year-end. LLP accounts must Follow the UK generally accepted accounting principles and other specific regulations.
Loans and debts due to members (the equal of partnership current accounts). Required to show as liabilities, then as part of the capital partnership accounts. This in turn reduces the LLP’s net worth and may affect its credit rating and borrowing capacity. We can sum up LLP advantages and disadvantages with an overview of tax matters.
In relation to tax matters, the following areas will need careful thought:
- Tax relief for losses in trading LLPs restricted. The restriction applies to ‘sideways relief’ and to capital gains tax relief
- There will be no scope for tax-efficient share incentives for staff as there are with a company
anti-avoidance provisions may apply to ‘disguised employment’ situations
- Weighing up the pros and cons. Often, an LLP is likely to be more attractive to those who would, in any event, have formed a partnership. Rather than a limited company, but who seek the benefit of limited liability.
Let our accountants in London make things easier to understand for you. We’re friendly, proactive, young and keep up with all the latest developments in your business to make sure you’re on top of your game.
Extra note: LLPA 2000, s 1-4; CTM36550