What is an LLP? Separate legal personality, Companies House and limited liability

What does it mean to be part of an LLP, and how is a limited liability partnership different from other types of business? In short, an LLP is a separate legal person, it is registered at Companies House, and its partners have limited liability. Those three features set it apart from a general partnership. Below I explain each one and then cover what you should include in your LLP agreement to avoid legal issues between the partners.

LLP separate legal personality

The first thing to understand is that the LLP is recognised under the law as a separate legal person. Just as you and I are natural persons, meaning human beings, an LLP is recognised as a legal person. It is not a human being, but it is a person nonetheless in the eyes of the law.

That matters because a person can do things in its own name. An LLP can enter into contracts and take on debt as itself, rather than those contracts and debts belonging to the individual partners. This is the key difference from a general partnership, which is not a separate legal entity.

LLP registration at Companies House

Secondly, an LLP is registered at Companies House, so it must be incorporated. It does not simply come into existence because two people start trading together. There are filing requirements, and certain key information about the LLP must be published on the public register that Companies House maintains.

So while an LLP gives you protection, it also comes with ongoing administration and public disclosure, much like a limited company.

Limited liability for LLP members

Thirdly, the LLP is made up of two or more partners who come together with a view to making a profit. Those partners have limited liability, which means they are not risking their house or their personal possessions on the debts of the business.

That is the feature that gives the LLP its name, and it is the main reason people choose it over a general partnership, where every partner is personally exposed.

What to include in your LLP agreement

The law gives you the structure, but the relationship between the partners is governed by the LLP agreement. These are the top three things I would make sure it covers.

Sharing profits and losses

First, set out how profits and losses are to be shared amongst the partners. Are they to be shared equally, or in proportion to how much capital each of the partners has invested into the LLP? Either approach can work, but it needs to be written down and agreed, not assumed.

Members' duties and consent decisions

Secondly, set out the kinds of duties the partners have. These can be specific duties attached to a particular partner, or general duties owed to the partnership and to the remaining partners.

Thirdly, set out the kinds of decisions that should require partnership consent. For example, you might specify that no one partner can go out and take out a large loan on behalf of the LLP without the approval of the other partners. Without a clause like this, one partner can commit the LLP, and therefore everyone in it, to something the others never agreed to.

The LLP is just one of the three main types of partnership that exist in the UK. To see how it compares with a general partnership and a limited partnership, read what is a partnership and the advantages and disadvantages of partnerships.

Next steps

If you want limited liability for every partner and are prepared to take on Companies House registration and filings, an LLP is worth considering. Before you incorporate, agree with your partners how profits and losses will be shared, what each partner's duties are and which decisions need everyone's consent, and have a corporate solicitor put that into a proper LLP agreement.