Limited liability but not a limited company

You've probably read the headline twice to ensure that you didn't mis-read it the first. Surely you only get limited liability if you are a limited company?

That was the case up until April 2001. Then the government introduced the first new legal status for over 100 years, the limited liability partnership.

What on earth is a limited liability partnership?

A limited liability partnership is the best (or worst, depending on how you look at it) of both limited companies and partnerships. From a tax point of view it is a partnership. Whilst it will be required to complete a tax return and accounts, it will not have any tax to pay. For tax purposes, its profits will be split between the partners involved and the partners will each receive personal tax bills through the self-assessment system.

Its statutory requirements are those of a limited company however. If its turnover exceeds the audit threshold it will be required to have an audit and it will need to file accounts anyway. The names of its partners will be listed at Companies House and as with limited companies a certain amount of information is public knowledge.

Perhaps most importantly, it will have limited liability in the event of its business failing. This means that the partners can only lose the money or assets that they have put into the business. Partners will not be liable for anything over and above these amounts and the issue of joint and several liability for partnership debts does not arise.

But what relevance is it to me?

Obviously the limited liability aspect of this new entity will be attractive to some small businesses. Most of those attracted by this aspect would still be better off setting up a limited company but there are a small percentage whose tax position is such that incorporation would actually increase their tax bill.

Even better is the possibility that the two could be used together with one of the partners being a limited company itself. This is quite a complicated area and one that is outside the scope of this article but there do seem to be boundless possibilities for using LLPs in the future. Watch this space!