Are you looking to set up a Limited Liability Partnership, or convert your business into one? If so, you’ll probably have some questions.
In her latest article, Corporate & Commercial Solicitor Zoe Watson answers some of the most common questions around LLPs and outlines the pros, cons and how to set one up.
What is a Limited Liability Partnership?
A traditional partnership is not a separate legal entity from its partners. This means that the partners involved are personally liable for any and all of the liabilities of the partnership, making it quite a high-risk way of conducting business.
A Limited Liability Partnership (LLP) is a body corporate which essentially protects its members from being personally liable for the LLP’s debts and obligations. It effectively limits their liability.
For example, if an LLP were in debt, the members would only be responsible up to the amount that they invested into the partnership. So, their personal finances and assets would remain untouched.
The majority of law applicable to LLPs is actually modified company law rather than partnership law. Unlike a general partnership, an LLP:
- is liable for its own debts;
- will contract in its own name with third parties; and
- can sue or be sued in its own right.
Who can set up an LLP?
There are very few requirements to set up an LLP, you can do so if your existing partnership:
- has a minimum of 2 partners; and
- is carrying on a business with a view to profit.
Who gets the profits from an LLP?
The members of the LLP have a right to receive the profits. How the profits are divided will vary from business to business, you may choose to share profits equally, based on performance or based on a fixed ratio.
Dividing profits on a fixed ratio means that the members agree on a specific percentage that each member will receive. This is usually based on each member’s contribution to the business, including their investment and percentage ownership.
An LLP agreement is incredibly important to specify not only how profits are divided but other fundamental matters governing the LLP.
What are the advantages of an LLP?
Click here to read the full article.