What Is a Limited Liability Partnership (LLP)?

Limited liability partnerships – more commonly known as LLPs – have become a popular structure for professional services firms, project-based ventures, and businesses where flexibility and shared management are essential. Although LLPs sit somewhere between a traditional partnership and a limited company, they operate under their own legal framework with distinct rights, responsibilities, and advantages.

For business owners deciding how best to structure their organisation, understanding how an LLP works – and how it differs from other business entities – is critical. This guide explains what an LLP is, how it operates, and when it may be the right choice for your business.

What Is a Limited Liability Partnership?

A limited liability partnership is a business structure that combines the flexibility of a partnership with the limited liability protections of a company. It allows two or more individuals (known as “members”) to conduct business together while limiting their personal financial risk.

Unlike a traditional partnership, an LLP is a separate legal entity. That means it can own assets, enter contracts, hire employees, and be sued in its own name. Members are generally not personally responsible for the LLP’s debts beyond the amount they have invested.

What Is the Structure of an LLP?

An LLP has no shareholders, directors, or issued share capital. Instead, it is owned and managed collectively by its members. Each member usually contributes capital, shares profits, and participates in the running of the business.

While LLPs have no formal requirement for a “management board,” many adopt internal structures similar to companies, with managing partners, finance partners, or operational leads. These roles are typically set out in an LLP Members’ Agreement (sometimes called a partnership agreement), which outlines how decisions are made and how profits are distributed.

LLP vs Limited Company

Although the names sound similar, LLPs and limited companies operate very differently.

A limited company has shareholders who own the business and directors who run it. Profits belong to the company and are distributed to the shareholders by way of dividends. Companies are taxed at corporation tax rates.

An LLP, by contrast, has members who both own and run the business. Profits are taxed individually through each member’s self-assessment. This gives LLPs greater tax transparency but also places more responsibility on individual partners.

In simple terms:

• Companies separate ownership and management.
• LLPs blend the two, offering more flexibility and autonomy.

Differences Between LLPs and Other Business Structures

When comparing LLPs to sole traders, traditional partnerships, or limited companies, several distinctions stand out.

LLPs offer limited liability like a company, meaning members are not personally responsible for the LLP’s debts. This is not the case with traditional partnerships, where partners remain jointly liable.

They also offer far more flexibility than a limited company in terms of profit sharing, internal structure, and decision-making processes. LLPs are often favoured by professional practices – such as solicitors, accountants, consultants, architects, or medical partnerships – where collaboration and shared management are central to the business model.

How Can I Set Up a Limited Liability Partnership?

Setting up an LLP in the UK requires at least two members and a registration with Companies House. The process involves submitting an incorporation document and choosing a registered address and LLP name.

Although not legally required, drafting an LLP Members’ Agreement is strongly recommended. This document sets out how decisions will be made, how profits will be shared, how members can join or leave, and how disputes will be resolved. Without it, the LLP defaults to statutory rules, which may not reflect the members’ intentions.

Benefits of Forming a Limited Liability Partnership

The appeal of LLPs lies in their combination of flexibility and protection. Members enjoy limited liability while retaining control over how the business is structured and how profits are distributed.

Tax transparency is another advantage, as members are taxed on their share of profits rather than through corporation tax. This can be beneficial for certain professional services firms or high-earning partnerships.

LLPs also offer a strong sense of shared ownership, which can be attractive to businesses where collaboration and collective decision-making are key.

Risks of Setting Up an LLP

Despite their advantages, LLPs are not suitable for everyone. Members are taxed as self-employed individuals, which means there is no PAYE withholding and no access to employee benefits such as statutory sick pay or maternity pay.

Members are also personally responsible for paying income tax and National Insurance on their share of profits, even if those profits are retained within the LLP.

Finally, LLPs require careful internal governance. Without a well-drafted LLP Members’ Agreement, disputes can quickly arise about profit share, responsibilities, or partner exits.

Who Owns the Partnership and What Are the Partners’ Responsibilities?

The members collectively own the LLP. Each member’s responsibilities are typically defined in the LLP Members’ Agreement and can include client management, financial oversight, strategic decision-making, or operational duties.

All members have a duty to act in the best interests of the LLP. While these duties are not identical to directors’ duties in a limited company, they carry similar expectations around honesty, diligence, and accountability.

What Is the Difference Between a Limited Partnership and an LLP?

A Limited Partnership (LP) is an older and more restrictive structure. It has two types of partners:

• general partners, who manage the business and have unlimited liability; and
• limited partners, who invest but do not take part in management.

An LLP, by contrast, gives all members limited liability and allows them all to participate in management. This makes LLPs more flexible compared to LPs.

What Is an Example of an LLP?

Professional services firms commonly operate as LLPs – for example, accountancy practices, law firms, consultancy groups, and medical practices. They benefit from the combination of shared management, flexible profit sharing, and personal liability protection.

Joint ventures or multi-disciplinary projects may also choose LLP status for the same reasons.

Is an LLP Members’ Agreement Mandatory?

No – but it is recommended. While an LLP can legally operate without one, doing so leaves the partnership subject to the default provisions in the Limited Liability Partnerships Act 2000, which are rarely suitable for commercial businesses.

A well-structured LLP Members’ Agreement creates clarity on profit distribution, voting rights, decision-making, dispute processes, retirement, and new member admission.

Can You Take a Salary from an LLP?

Members do not receive a salary in the traditional sense. Instead, they draw money from their share of LLP profits, often referred to as “drawings.” These drawings are not the same as employment income, and each member must report their earnings through self-assessment.

Are LLPs Good for Small Businesses?

LLPs can work well for small businesses where the owners want flexibility, shared management, and limited liability. They are particularly suitable for service-based businesses or ventures involving multiple partners with equal involvement.

However, they may be less suitable for owner-managed businesses seeking traditional company tax planning strategies or those expecting outside investors, who typically prefer share-based structures.

How Much Tax Does an LLP Have to Pay?

An LLP does not pay corporation tax. Instead, each member pays income tax and National Insurance on their share of profits, regardless of whether those profits are withdrawn.

This transparency can be efficient for some businesses but may lead to higher overall tax for others.

What Documents Must an LLP File with Companies House?

An LLP must file:

• an annual confirmation statement,
• annual accounts, and
• any updates regarding members or the registered office.

Although LLPs enjoy internal flexibility, they still face similar filing requirements to limited companies.

Do LLPs Have a Company Registration Number?

Yes. Once registered, an LLP is assigned a company registration number by Companies House, just like a limited company. This number is used on all official documents and filings.

Summary of Limited Liability Partnerships

Limited liability partnerships offer a compelling blend of flexibility, autonomy, and protection, particularly for professional services firms and collaborative ventures. However, they also bring specific responsibilities around taxation, governance, and member accountability.

At 3volution, we help businesses choose the right structure, draft robust LLP Members’ Agreements, and navigate compliance with Companies House. Whether you’re forming a new LLP or restructuring an existing one, our corporate solicitors can guide you through every step with clarity and precision.

Speak to our corporate law team today to discuss whether an LLP is the right choice for your business.

Limited Liability Partnership FAQ’s

What is a Limited Liability Partnership (LLP)?

A limited liability partnership (LLP) is a UK business structure that combines the flexibility of a traditional partnership with the protection of limited liability. An LLP is a separate legal entity, meaning it can own assets, enter contracts, and employ staff, while members’ personal liability is limited to their investment in the LLP.

How does an LLP work in practice?

An LLP works by being owned and managed by its members, who jointly run the business and share profits. Unlike a company, there are no shareholders or directors. LLP management arrangements, profit sharing, and decision-making processes are usually governed by an LLP Members’ Agreement.

What is the difference between an LLP and a limited company?

The key difference between an LLP vs limited company is ownership and taxation. In a limited company, shareholders own the business and directors manage it, with profits taxed under corporation tax. In an LLP, members both own and manage the business, and profits are taxed individually, making it a hybrid company vs partnership structure.

What are the main benefits of a Limited Liability Partnership?

The main benefits of an LLP include limited liability for members, flexible profit sharing, and tax transparency, as profits are taxed at member level rather than through corporation tax. LLPs are particularly attractive to professional services firms that value shared ownership and operational flexibility.

What are the disadvantages and risks of an LLP?

The disadvantages of an LLP include members being taxed as self-employed individuals, meaning higher LLP tax exposure in some cases. Members must pay income tax and National Insurance on profits even if not withdrawn, and there are no employee benefits such as statutory sick pay.

How do you set up a Limited Liability Partnership in the UK?

To set up an LLP in the UK, at least two members are required and the LLP must be registered with Companies House. Although not legally mandatory, drafting a detailed LLP Members’ Agreement is strongly recommended to define profit sharing, governance, and exit provisions.

Do LLP members get paid a salary?

LLP members do not receive a traditional salary. Instead, they take LLP drawings against their share of profits. This form of partner remuneration is taxed through self-assessment rather than PAYE, reflecting the member’s self-employed status.

How is tax paid in a Limited Liability Partnership?

An LLP itself does not pay corporation tax. Instead, LLP tax is paid by each member individually through income tax and National Insurance on their share of profits, regardless of whether the profits are actually withdrawn from the business.

Who owns an LLP and what are the members’ responsibilities?

LLP ownership rests collectively with the members. LLP members’ responsibilities are usually defined in the Members’ Agreement and may include client management, strategic decisions, or financial oversight. Members owe duties to act in the best interests of the LLP and the partnership as a whole.

Are LLPs suitable for small businesses and professional firms?

An LLP for small businesses can be an excellent choice where owners want shared management, flexibility, and limited liability. Professional services LLPs—such as accountants, solicitors, consultants, and architects—often prefer this structure. However, LLPs may be less suitable for businesses seeking external investors or traditional company tax planning.