Limited liability partnerships (LLPs) were originally designed to allow larger professional partnerships to trade with limited liability protection. However, they are now being used to good effect by other businesses. It is sensible to take the advice of an accountant prior to forming a LLP as the efficacy of its use will depend on the type of business being operated and the way in which monies are earned.

The LLP can provide the organisation and flexibility of a partnership to what is in effect a separate legal entity with limited liability. The earnings of the LLP are taxed as a partnership, namely each partner/member is taxed individually on their own earnings as a self-employed person.

An LLP is required to have at least two members. If its membership falls to only one member and the LLP continues to carry on business for more that 6 months then the benefits of limited liability will be lost. Every member is an agent of the LLP and the partnership will be bound by anything done by a member on its behalf unless the member had no authority to act on behalf of the LLP in a particular capacity and the person with whom the member dealt knew that either they had no authority to act or they did not know of his or her membership of the LLP.

A “designated member” has the same rights and duties towards the LLP as any other member. These rights and duties are governed by the Limited Liability Partnership Agreement and in general law. However the law on LLPs places extra responsibility on designated members and in particular they are responsible for:

• acting on behalf of the LLP
• appointing an auditor
• delivering the accounts to the Registrar of Companies
• notifying the Registrar of any membership changes or change to the registered office address or name of the LLP
• preparing, signing and delivering to the Registrar an annual return
• signing the accounts on behalf of the members.

Designated members are also accountable in law if they fail to carry out these responsibilities.

As with companies there are various restrictions on names and advice can be given on the proposed name prior to the formation. The entity will have ‘limited liability partnership’ or ‘LLP’ at the end of the name and must not be too similar to an existing company or other llp. In addition, if the name suggests banking approval, connection to the UK or other financial matters, consent will be required. For example, this includes the words national; authority, board or council; institute or institutions; charter or chartered; chemist or chemistry.

There are similar rules and regulations to those in place for companies in respect of the delivery of accounts to Companies House and the provision of certain information and also similar exemptions in relation to what size of LLP has to have its accounts audited.