Limited Liability Partnership
Two or more persons wishing to carry on a lawful business (or existing partnerships) can incorporate an LLP and they have the same flexible structure as a standard partnership. The main differences are however that the LLP is taxed as a partnership and not a company and the liability of the partners (or members) is limited and so they are not personally liable for any losses (although the LLP itself is liable for the full extent of its assets).
On the other hand, an LLP requires:
- Registration with Companies House
- More strict administration to meet Companies House rules
- Annual publication of accounts
It is prudent to have a legally binding agreement in place. This can be either 'long form' or 'short form' and allows the LLP to structure the business and formalise the arrangements between the partners.
An agreement is not required by law but it is vital to avoid uncertainty and to prevent misunderstandings and disputes. Without an agreement the actions, powers and rights of each partner are controlled by the Partnership Act 1890 which can be quite arbitrary and generally unsuitable. For example, under this Act, a partner can withdraw immediately, without giving notice which could force the closure of the partnership if that partner were to withdraw their capital contribution.