Using a Limited Liability Partnership is this weeks podcast theme.

Are you looking to set up a Limited Liability Partnership?

A limited liability partnership (LLP) has many of the features of a normal partnership and a company. In this podcast I will explain

• how set up an LLP,
• what an LLP is
• what the advantages and drawbacks are

An LLP has the organizational flexibility of a partnership is taxed as a partnership, but in all other respects, it's very similar to private company.

If you're considering setting up your own business or expanding your existing one then listen to this podcast first! It could save you time and money by knowing exactly what's involved in setting up an LLP before committing yourself.

You'll learn everything from why people choose LLPs over companies. This information may be invaluable.  The best part is that it won't cost you anything at all!

So, sit back relax and listen while I talk to you about LLPs and remember - knowledge really is power when it comes down to making decisions like these!

Listen to find out more.

Conclusion

Knowing how you want to set up your business and LLP is a need to know.  Understanding Limited Liability Partnerships are an increasingly popular business model.

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You can make more profits, save tax and time, improve your well-being and your money mindset.

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A limited liability partnership is equivalent to a duck-billed platypus. For those of you who have not seen a duck-billed platypus, a fascinating animal, it is a bit of every animal. It has fur. It has a bill like a duck, swims under water and lays eggs. Likewise, an LLP shares many of the features of a normal partnership blended with that of a company.

In this podcast, I'm going to outline what an LLP is, some of its benefits, some of the drawbacks and how you go about forming an LLP.

You're listening to the I Hate Numbers Podcast with Mahmood Reza. The I Hate Numbers podcast mission is to help your business survive and thrive by you better understanding and connecting with your numbers. Number love and care is what it's about. Tune in every week. Now, here's your host, Mahmood Reza.

Hi folks. Welcome to another weekly episode on I Hate Numbers, the podcast that's there to help improve your financial awareness, improve your money mindset, make more profit, save tax, and time for your business. What a fantastic combo we have there. Let's crack on with the podcast. Now, I'm more in a situation to talk about LLPs than I'm duck-billed platypuses, but an LLP fundamentally offers reduced personal responsibility for business debts.

However, unlike the members of an ordinary partnership, is the LLP the being that itself is responsible for any debts that accrue, not the individual partners. That's the feature of a corporate structure. The other main difference is that an LLP has the organisational flexibility of a partnership, is taxed as a partnership, but in all other respects, it's very similar to a private company.

Let's talk about how we go about setting up a limited liability partnership to run your business. Firstly, as you would do with a corporate creation, you've gotta choose a name for your LLP. Make sure it's not taken. You can have LLP as the abbreviation in the name. I would recommend you use limited liability partnership, and therefore, you can then abbreviate if you need to.

Secondly, choose a registered office address that acts as your principal place of business, and then you need to appoint what are called general and limited partners. More of that later on in the podcast. And then finally, you need to register that entity with Companies House. Either speak to your accountant, you can do it online yourself,

choose a formation agency. The choice is entirely up to you. The procedure is very similar as though you are setting up a private limited company. Now, let's think in terms of the responsibilities of the partners, and there are two types of partners that we have in an LLP. In an LLP, the types of partners you must have is what's called a general partner and one is called a limited partner.

Stick with me for now. Now, a partner can actually be either an individual or a company, so it is quite possible to create an LLP where all the partners involved are actually corporate entities in their own rights. The type of partner you are makes a difference to your liability for the partnership debts and the responsibilities that you have to take on.

You can't be both at the same time. Now, all partners are equally responsible for any debt and obligations until the partnership has actually been formally registered. So if you are a partnership that's not an LLP, all of the individual partners are jointly and separately liable for any debts that may accrue.

Now let's get back to the LLP. I said earlier, there are two types of partners that you have. One's called a limited partner and one's called a general partner. Let's examine what a limited partner actually is. Now, if you're a limited partner, you put in a certain amount of money or property to the business when it’s set up.

You are only liable for the debts up to the amount of money that you've contributed into the LLP. Now, you can't manage the business and you cannot remove and take out your original contribution. It's locked into the company and by company we're talking the LLP. You must also, if you're a limited partner, register for self-assessment

with HMRC. Now, bear in mind folks, we're talking and focusing on LLPs for the UK, but LLPs are a very popular model around the world. So it's not just the UK, we see them in many, many countries around the world. Now let's talk about what a general partner is. Now, as a general partner, you are liable for any debts the business cannot pay.

You are the partner that controls and manages the business, and you are the one who can also make decisions that bind the LLP. Now if you're a general partner, you must initially register your LLP with the company's house, register the business in its own right for self-assessment and register separately as an individual.

If you check the show notes at the end, by the way, I'll provide some links where you can actually follow those through and do the necessary registration. If relevant, you register the business for VAT assuming that the sales that you are making exceed the statutory threshold. And lastly, you act for the business

if in that eventual situation arises where the business is wound up or dissolved, you step in and you help resolve that situation. The last thing with an LLP, you must send accounts to Companies House if the general partner is a limited company. Now let's dive more into why somebody would wish to create a limited liability partnership.

There are many benefits as well as drawbacks to it as well. Now the LLP itself, by the way, is a relatively new kid on the block, and it's been with us for about 20 years. It was introduced in 2000 Finance Act, and it became into being in April, 2021. Now, one of the reasons it's very beneficial is because you may have individual members, as they're called in an LLP, contributing different levels of skills, different levels of service, and therefore you may wish to reflect the distribution of any profits according to that

member's contribution. In a company structure, what typically happens is, when profits are created, they go into a pot and they're shared out based on the shareholding. Here, we've got much more flexibility as to how those profits are distributed accordingly. Within an LLP, by the way, folks, the earnings of the members is normally seen as personal income.

Let's have a look at some of the main benefits of being an LLP. Now, an LLP has limited liability, and what that means is your individual personal asset as a member are protected from the liabilities of the business. So if for any reason that the LLP runs into trouble, your personal assets are protected, unless of course you've given a personal guarantee.

LLPs are considered separate legal beings in their own rights, which means they can make contracts in their own right, they can purchase property, rent, lease, employ staff, enter into contracts, and it's the LLP that is responsible as the engager, the legal person. We have flexibility also in an LLP and how we distribute profits, which we can review on an annual basis, is based on the written agreement between all the members of the LLP.

What this means is that gives you a great opportunity to distribute the profits according to how members contribute during the course of the year. This also gives you greater flexibility in how the LLP, the business is managed. I said earlier on that the partners in an LLP can actually be companies in their own right, and it's not unusual for a partner that's a limited company

also to have another business going on as well. Corporate ownership is a very popular mechanism here. If you create a normal company, by the way, folks, one of the directors must be an individual, not so when you create an LLP. Now, in addition, as we said, we can divide the membership up into different tiers, different classes, different responsibilities, and we can have designate and non-designate members.

Now, there are some drawbacks, as there are in most things in life, to becoming an LLP. Now some of the drawbacks may be that you have to prepare statutory accounts, submit them to Companies House, and they will be there for public record. It may be such, depending on the level and the size of the LLP, that the income and expenditure will also have to be disclosed in public as well.

When I say in public, those accounts are lodged at Companies House. One of the other major drawbacks as well is the income i.e the profits that are generated through the LLP cannot be rolled over, held back, or deferred. In a corporate structure, if the company makes a level of profit, it only becomes taxable on the individual shareholder

when they withdraw those funds out of the company. In an LLP that's not quite the case. Profits are assessed and taxed in the year that they arise. Now, that may be a plus point, it may be a down point. It really depends on the partner's individual circumstances. You cannot retain profit in the same way as a company can

that's limited by shares. That means effectively each year that goes by, profits are distributed to each individual partner based on the membership agreement that you've got. An LLP must also have at least two members. So if one member leaves a two-member LLP, the LLP itself has to be dissolved. Now, this is not an exhaustive list, folks, but it certainly covers some of the main issues that you may feel are drawbacks on LLP.

Now, like in all things in life, you need to evaluate that. You need to speak to your advisor. If you feel you need help in this direction, then drop us a line accordingly. Now, just in terms of an overall summary, partnerships in general terms, whether they're LLP or unincorporated, one, have many advantages. They spread risks

in many ways. Decisions can be made with a benefit of input from at least two people. A broader perspective can be taken of the issues concerned. You can tap into more financial resources and you may get more funding than you wouldn't otherwise be allowed to get. So folks, I hope you found this podcast useful.

So, let's just summarise what we've got before we sort of depart. So we've got an LLP that shares the characteristics of a company in terms of protection, but it has also the feature of a partnership where those profits are distributed based on your decision. Also, we don't need to have individual shareholding to determine how the profits are distributed.

That can be based on agreement, and it can be flexed and adjusted each year. You have to submit accounts to Companies House in a normal fashion, and you have to register for self-assessment as well as the partnership itself has to be registered. So folks, I hope you found that useful. Reflect, sit back, think if it's yours, and in all these things, make sure you take proper advice before you decide to create your LLP.

Until next week, folks, have a fantastic week. We hope you enjoyed this episode and appreciate you taking the time to listen to the show. We hope you got some value. If you did, then we'd love it if you shared the episode. We look forward to you joining us next week for another I Hate Numbers episode.