• Home
  • Blog
  • Why is Limited Liability Partnership a popular business structure?

Why is Limited Liability Partnership a popular business structure?

Apr 18, 2017

It is obvious that this business structure gives certain advantages to business founders and allows them to set up most effective businesses. But why is Limited Liability Partnership (or LLP) so popular among non-resident entrepreneurs in the UK?

Let us analyze most crucial advantages of choosing this business structure for the UK company formation.

First of all, you will require more than one partner for registering a limited liability partnership. Non-residents mostly choose LLP when they need to limit their obligations and liability to personal investments. The classic image of this business structure combines features of the limited liability company and general partnership.

What are the main features of the “limited” company?

This structure is ruled by the 2000 Limited Liability Partnership Act and it lets non-UK entrepreneurs form the most effective business in matters of tax, liability and organization. Limited liability partners can use the rights of partnership, which means two founders are equally able to perform management actions, and are responsible for decisions. At the same time their liability is limited to their personal investments in business and they are not responsible for company’s debts with their own funds. This feature is alike with limited company structure which is an excellent choice for international business.
Considering tax matters, limited liability partnership is efficient for non-residing companies as well. Advantages of forming the LLP is that you are able to operate business inside the UK, own real estate property, borrow money and withdraw costs fr om your accounts. All these features are available for LLP owners and this allows partners to use efficient tax planning and even lim it National Insurance Contributions that are fairly high for domestic business. LLP is exempt of double taxation and you will have no need to scheme a special taxation plan or file additional documents to avoid it.

Another positive moment of incorporating a limited liability partnership is flexibility.

Two main partners can invite nominee members or function by themselves, perform management duties by themselves or appoint special workers, operate inside or outside the UK. All these features allow them to scale business in any ways they want. Main partnership members are also individually protected from the massive lawsuits that may arise regarding their business activity. This is why you, as an entrepreneur, should think about setting up your Limited Liability Partnership. LLP as an organization is subject to corporate law and it needs to be established under the rules of the 200 Act.

Let us describe how to incorporate LLP in legal way.

First, you need to decide on main organizational matters. This includes company’s name, partners, operating premise and other. You should also check legal requirements if you want to set up a Limited Liability Partnership outside the UK.

Main document that should be drafted before registering LLP is the Limited Liability Partnership Agreement. It defines roles and responsibilities of both partners are defined in this agreement. Also, you can outline personal capital investments, distribution of profits and losses, basic liability and any restrictions. This document will prevent any misunderstandings or conflicts between partners and will let them function effectively.

How to incorporate a limited liability partnership according to state requirements in the UK?

After signing the agreement with your partner, you can move to finding a registered agent, which is required in some countries, and complete the Certificate of LLP. This document should be submitted to state service. Hundreds of the UK Limited Liability Partnership formations are performed in the UK per year so this procedure is fast and transparent. Afterwards, you need to obtain necessary licenses or permits to perform your business activities. Employer Identification Number, State ID Number and Insurance are required in some jurisdictions so you should think about obtaining it in advance.

Basically, starting business in form of LLP in the UK is a reasonable decision for partners who want to strictly define their rights and obligations. Every regular business can get profits from this structure and it is beneficial to both create a new company or to rebuild existing one. Professional assistance from the OffshoreLicense Ltd may be useful for entrepreneurs who are not sure whether they need formation of LLP in the UK. Starting this business will help partners be responsible only for their own mistakes or negligence and not to bear liability for the second part. This is the main reason businesses all over the world choose this business structure.

Back to list