The UK Limited Liability Partnership, introduced under the Limited Liability Partnerships Act (2000), is widely used by professional firms and, increasingly, as a tax efficient vehicle for non-UK, international trading purposes.
Limited Liability Partnerships (LLPs) combine the benefits of corporate status (i.e. having a legal personality separate from its members) with the protection of limited liability for members. In addition, it is the members (or partners) of the partnership, rather than the partnership itself, who are subject to taxation on taxable profits.
Formation and Membership
A UK LLP is registered at Companies House in the UK and may be formed by two or more persons (which include corporate entities), for the carrying on of a lawful business with a view to profit.
There must be at least two designated members, who are responsible for the management of the LLP, at all times, but there is no restriction as to their nationality or residence.
The Partnership Agreement
There is no requirement under the Act for an LLP to have a written partnership agreement. However, it is recommended that a written agreement be entered into between the parties.
Normally, a partnership agreement would be expected to include details of the nature of the business, members’ shares and contributions, profit and loss sharing arrangements and management formalities as well as the duties of each respective member.
Separate Legal Status
The UK LLP has a separate legal status. An LLP is treated as ‘body corporate’ for UK company law purposes.
The liability of members of an LLP is limited to their contribution to the assets of the LLP.
A key feature is that the UK LLPs are transparent structures for UK tax purposes despite their separate legal status. No tax is payable by the LLP itself, instead, the UK tax authorities will look to the respective partners in assessing liability to UK tax.
If the members of the LLP are non-resident and the income of the LLP is non-UK source, then the LLP and its members will not be subject to UK taxation.
UK LLPs combine the benefits of corporate status and unlimited capacity with the protection of limited liability for members and the ability to operate and be taxed as a partnership.
As a result of the LLP’s separate legal personality, it may contract and hold assets in its own name where required, similar to a limited Company.
Accordingly, the UK LLP presents as an extremely flexible vehicle for international trade, which correctly structured, will not be subject to UK taxation.