Introduction to LLPs

Produced by Tolley in association with Jackie Barker of Wells Associates

The following Owner-Managed Businesses guidance note Produced by Tolley in association with Jackie Barker of Wells Associates provides comprehensive and up to date tax information covering:

  • Introduction to LLPs
  • Legal implications of LLP status
  • Tax treatment of LLPs
  • Exceptions
  • Potential triggers for loss of tax transparency
  • Advantages and disadvantages of an LLP
  • Advantages
  • Disadvantages

Introduction to LLPs

This note provides an overview of the legal and taxation issues surrounding limited liability partnerships (LLPs). The various advantages and disadvantages of an LLP structure are also considered.

Further detailed guidance on the legal implications and specific taxation position can be found in the following guidance notes:

  1. How to set up an LLP

  2. Legal implications of LLP membership

  3. Transfer of a partnership to an LLP

The rules discussing the allocation and taxation of LLP partnership income and gains are essentially the same as for general partnerships.

These are therefore discussed in context in the guidance notes in the sub-topic ‘Taxation of partnership income’ and ‘Taxation of partnership gains’ (see the Trading profits of a partnership and Capital gains of a partnership guidance notes).

LLPs were introduced by the Limited Liability Partnerships Act 2000 (LLPA 2000) as a type of UK legal entity. The primary legislation that applies to LLPs can be found in the LLPA 2000 with subsequent regulations being relevant, see LLPA 2000, ss 15–17. The legislation and regulations import various other parts of company law, such as Companies Act 1985, Companies Act 2006 and Insolvency Act 1986 so that they apply to LLPs in the same way as for limited companies.

Legal implications of LLP status

An LLP is a body corporate which has its own legal capacity. It can contract in its own name, hold property and assets in its own right, and is liable for its own debts and obligations. For legal purposes, an LLP is very similar to a limited company.

An LLP has members which are effectively the business owners and are similar to the shareholders and directors in a limited company. LLPs offer their members limited liability so that they are only liable for the LLP’s debts to the extent of their capital interest in the LLP. However, there are certain exemptions to this general rule which may result in the members losing the benefit of limited liability. For details

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