1. A corporate entity
LLPs are corporate entities and in the eyes of the law the LLP is a “person”.

Yes the law recognises the LLP as a body corporate and when you form an LLP Companies House will issue a Certificate of Incorporation which is effectively its birth certificate.

LLPs and limited companies are both recognised by the law as an individual entity capable of doing any of the following things (among others) in its own name:

• owning or leasing land


• suing and being sued


• granting a floating charge or debenture to its bankers (or other creditors).

This is different to a traditional partnership which is not a legal “person” but a collection of partners (who are themselves companies and/or individuals).

For these reasons the admission or departure of members and deaths within the partnership are easier to manage in an LLP than in a traditional partnership structure.

An LLP may have an unlimited number of members. Traditional partnerships were limited to 20 partners (although there are exceptions for certain professions).

2. An excellent vehicle for raising finance
An LLP can raise finance more easily than a traditional partnership.

Due to its status as a body corporate the law will recognise a “floating charge” granted by an LLP. This is a charge over groups of assets which are changing during the life of the business (e.g. book debts due to the business or stock held by it). This is an attractive form of security to bankers and other lenders but a floating charge cannot be granted by a traditional partnership.

In a traditional partnership all the partners would be liable to the bank for any partnership borrowings. However with an LLP the liability of members to the bank is not automatic. A bank may ask the members to give personal guarantees but these may be limited to a specified amount which is preferable to the unlimited liability of partners of a traditional partnership.

In some old style partnerships the reluctance of one partner to become liable to a bank sometimes prevented the partnership raising funds whereas in an LLP it may be possible to structure matters to avoid such problems.

Liability of LLP members to lenders is not automatic – it is a matter for negotiation.

3. The requirement to file accounts
LLPs must file their accounts at Companies House and those accounts are open to public inspection.

This is perhaps the only downside of an LLP compared with a traditional partnership (whose accounts are private). The filed accounts must be audited in a similar way to those of limited companies. Small and Medium sized LLPs can file abbreviated accounts (i.e. not the full audited version) and, again, the principles are similar to those applying to limited companies.

If the profits of the LLP exceed £200,000, then the accounts must disclose the share of profits attributable to the highest earning member.

4. Members taxed as self employed
The members of the LLP are taxed on a self employed basis as if they were traditional “partners”.

Many traditional partnerships have wanted the liability protection of a limited company but without the Corporation Tax regime. The Corporation Tax regime is unattractive to many individuals because of the potential for a double tax bill:

• the company pays corporation tax on its profits and then


• the individual pays tax again on money withdrawn from the company.

Members of an LLP are taxed in the same way as partners in a traditional partnership. Please note that this applies to LLPs operating professional and trading businesses only, this tax regime is not available to an LLP operating an investment business.

5. Members are not personally liable for debts of the LLP
Whereas every partner in a traditional partnership has unlimited liability for all the debts of that partnership the position for members of the LLP is radically different. However, the members of an LLP are only liable to lose the capital that they have invested in the LLP. This simple principle is subject to a number of complex rules but as long as a member runs the LLP properly and responds promptly and responsibly to any financial crisis they should not suffer any loss beyond their capital invested in the LLP.

We have prepared a detailed paper on the possible ways in which a member can incur personal liability and we have compared the position with that for limited companies and traditional partnership.

Download the paper
Analysis of principal situations where members of limited liability partnerships can be personally liable (PDF 5 pages)

Our view is that LLPs offer excellent protection from personal liability and are almost as effective as a limited company.

6.Privacy of internal members arrangements
In the case of an LLP the agreement between the members remains private and is not filed at Companies House. This agreement is essential and should contain the key rules for profits sharing, capital requirements, drawings, voting, retirement, expulsion, etc.

If there is no written members agreement then the Limited Liability Partnership Act 2000 does imply a very basic set of rules for the relationship of the members and the LLP. However, these provisions are completely inadequate for most businesses that become LLPs.

Please note that the old Partnership Acts implied certain rules for traditional partnerships (if there was no other agreement between the partners). However, those rules do not apply to LLPs.

The Members Agreement is one of the most important documents in the establishment of the LLP and this is where the extensive experience and commercial sense of SGH can ensure that the LLP has a workable and effective structure for the success and growth of its business while also ensuring that the protection of members from personal liability is maintained.

If an existing business is being transferred from an individual, traditional partnership or limited company then a business transfer agreement (and possibly other documents) will be needed. SGH has the experience and knowledge to carry out any of these transactions efficiently.

David Sprecher Partner, Head of Company / Commercial Department 020 7544 5556 davids@sghlaw.com

Emma Shipp Partner, Company / Commercial Department 020 7544 5550 emmas@sghlaw.com

This website is intended only for use by entities within the United Kingdom.

On this website, Sprecher Grier Halberstam LLP is only able to give some indicative outline information regarding the formation, structure and operation of LLPs. Sprecher Grier Halberstam LLP does not warrant this advice to be accurate, complete or current. No responsibility is taken for this advice and if you wish to consider the adoption of LLP status, you should seek professional guidance from Sprecher Grier Halberstam LLP.

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