The formation of a Limited Liability Partnership (LLP) is more complex and costly than that of a partnership but similar to that of a private limited company where there is a statutory requirement to file particular forms with Companies House. Furthermore, like a limited company there are statutory obligations which those in the partnership (“members”) must adhere to.
The LLP retains the flexibility of a traditional partnership as opposed to the rigid structure of a private limited company. Personal liability of members is limited as the LLP is a separate legal entity in law. Consequently, there is no joint liability on the part of members for contracts entered into by the LLP. However, there are “claw-back” provisions in the case that the LLP ceases to trade, and the members can be more exposed to liability than in a private limited company. Other than this, members can still be liable in tort or their own negligence.
There are no restrictions on the number of members that can be admitted to an LLP but a minimum of two of them must be “designated members” – akin to the role of company secretary and director – and the law places extra responsibilities on them. If an LLP is ever reduced to one member, that member is the designated member.
Members enjoy tax transparency as if they were partners in a partnership. Likewise, new members can bring new capital to the LLP where investors can be involved in the management without losing the benefit of limited liability. However, the admittance of a new member is treated as if the existing members are making a disposal of part of the assets of the LLP.