What is a limited liability partnership (LLP)?

A limited liability partnership (LLP) is a business model that shares some characteristics with a limited company and a regular partnership while possessing unique features.

LLPs are relatively new business structures in the UK. They were introduced by the Limited Liability Partnerships Act 2000.

Since their introduction, LLPs have become a popular choice for professional services providers requiring collaboration, such as law, accounting and consultancy.

So, what type of businesses would typically incorporate via an LLP, and what specific benefits does this model offer?

What, if any, are the disadvantages of this type of business structure?

Find out more in our brief guide to Limited Liability Partnerships.

LLP structure

An LLP must have at least two members. Members can be individuals or companies.

An LLP must also have at least two designated members. If the LLP has fewer than two designated members, every member may be treated as a designated member.

Designated members have additional legal responsibilities, particularly for ensuring that the LLP meets its Companies House filing obligations.

The particulars of the partnership, including each member’s financial contribution and their share of profits, will usually be set out in a formal LLP agreement.

It is also advisable to include provisions for dispute resolution, the admission of new members, how decisions are made and procedures for members exiting the LLP.

Once the LLP is incorporated at Companies House, it becomes a separate legal entity and offers members limited liability.

In other words, members’ personal assets are largely protected from liabilities that arise from the business itself.

Limited liability isn’t absolute. A member can still be personally responsible for their own wrongdoing, and personal guarantees or insolvency rules can also result in personal liability in some circumstances.

Members’ and designated members’ responsibilities

In contrast to an ordinary partnership, the LLP itself is a separate legal entity and is generally responsible for its own debts and obligations.

The members jointly own and run the enterprise according to the arrangements they have agreed.

Designated members have particular statutory responsibilities. These include arranging for the LLP’s accounts to be prepared and filed, filing its Confirmation Statement and notifying Companies House about certain changes.

The LLP must file accounts and a Confirmation Statement with Companies House. Tax returns are dealt with separately through HMRC.

You can read the official GOV.UK guide to setting up and running an LLP.

How is an LLP taxed?

One of the major differences between an LLP and a limited company is the way profits are taxed.

An LLP is generally tax transparent. This means that the LLP itself does not normally pay Corporation Tax on its trading profits. Instead, profits are allocated to the members, who are normally taxed on their respective shares.

Individual members generally report their taxable share of the profits through Self Assessment and pay Income Tax and National Insurance where applicable.

Importantly, members are generally taxed on their allocated share of the LLP’s taxable profits whether or not all of the cash has actually been withdrawn from the LLP.

This differs from a limited company, where the company pays Corporation Tax on its profits and shareholders may then receive dividends from profits available for distribution.

National Insurance for LLP members

Self-employed LLP members may pay Class 4 National Insurance on their taxable profits.

For 2026/27, Class 4 NIC is charged at 6% on profits between £12,570 and £50,270 and 2% above £50,270.

Most self-employed people with profits of at least the Small Profits Threshold no longer actually pay Class 2 NIC, but are treated as having paid it for the purpose of protecting their National Insurance record.

If profits are below the Small Profits Threshold – £7,105 for 2026/27 – voluntary Class 2 contributions can still be paid. The 2026/27 voluntary Class 2 rate is £3.65 per week.

The salaried members rules

Not every LLP member is automatically treated as self-employed for tax purposes.

The salaried members rules can treat an individual member of an LLP as an employee for Income Tax and National Insurance purposes where all the statutory conditions are met.

Broadly, the rules look at:

• Whether most of the member’s remuneration is effectively a fixed or otherwise disguised salary rather than genuinely linked to the LLP’s profits.
• Whether the member has significant influence over the affairs of the LLP.
• The amount of capital the member has contributed to the LLP.

The detailed rules can be complicated, particularly for larger professional partnerships. HMRC provides detailed guidance in its Partnership Manual.

The appeal of an LLP

LLPs appeal to partners who want their individual share of the business profits to be defined rather than operating through a limited company where profits belong to the company and may subsequently be distributed as dividends.

This business structure can appeal to entrepreneurs and professionals, such as designers, solicitors, accountants and consultants, who want to combine the benefits of a separate legal entity and limited liability with much of the organisational and tax flexibility of a partnership.

Some benefits of an LLP

• Limited liability. Members are generally not personally responsible for the LLP’s debts simply because they are members, although there are exceptions.
• Separate legal personality. An LLP can buy or lease property, hire staff, enter into contracts and incur liabilities in its own name.
• Greater flexibility. The operation of the LLP, including the distribution of profits between members, can be agreed in the LLP agreement and changed where the members agree.
• No share capital. There are no shares to issue or transfer when admitting a new member, although the LLP agreement and Companies House records will need to be dealt with appropriately.
• Tax transparency. An LLP does not normally pay Corporation Tax on its trading profits. Instead, members are generally taxed on their allocated shares.
• Flexible management. LLPs do not have the same board and shareholder structure as limited companies, allowing members considerable flexibility over how internal decisions are made.

Some disadvantages of an LLP

• Members can face Income Tax and National Insurance on their share of profits. Depending on the circumstances, this may produce a different tax result from operating through a limited company and taking a combination of salary and dividends.
• Members can be taxed on profits they haven’t withdrawn. Leaving cash in the LLP does not necessarily postpone the member’s tax liability on their allocated profit share.
• Accounts are filed at Companies House. LLP accounts form part of the public record, subject to the applicable accounts filing regime.
• More administration than an ordinary partnership. An LLP has Companies House filing and reporting obligations because it is an incorporated entity.
• The salaried members rules can apply. Some LLP members may be treated as employees for tax purposes rather than self-employed partners.

What happens if an LLP falls to one member?

An LLP is intended to have at least two members.

If the number falls below two, the LLP does not automatically dissolve immediately. However, the situation needs to be dealt with.

If an LLP carries on business with only one member for more than six months, that member can become personally liable for LLP debts incurred after the six-month period while they knew the LLP was operating with only one member.

This makes succession arrangements particularly important where an LLP only has two members.

LLP or limited company?

Both structures provide a separate legal identity and limited liability, but they work quite differently.

A limited company is owned by shareholders and run by directors. The company pays Corporation Tax on its profits and shareholders may receive dividends.

An LLP has members rather than shareholders and directors. It is generally tax transparent, with individual members paying tax on their share of the profits.

LLPs can therefore be particularly attractive to professional firms and businesses where several people want to work together and share profits flexibly.

A limited company may be more appropriate where you want a conventional shareholder structure, want to retain profits within the company, plan to issue different classes of shares, or expect outside investors to take equity.

Neither structure is automatically more tax-efficient than the other. The outcome depends on the level of profits, how much money the owners need to withdraw and their individual circumstances.

Does using an LLP affect IR35 or employment status?

Using an LLP does not, by itself, determine the employment status of somebody providing services to a client.

The tax and employment status consequences depend on the actual arrangement and the relevant legislation. An LLP should therefore not be viewed simply as a way of avoiding IR35 or employment status rules.

What’s in a name?

Members can register an LLP using their own names, such as Bruce & Brown LLP, or use a descriptive name, such as IT Enterprises LLP, for example.

The name must end in Limited Liability Partnership or LLP – or the Welsh equivalents where applicable – and must comply with Companies House naming rules.

Registering the LLP prevents another entity from registering exactly the same name at Companies House, although this is not the same as obtaining trade mark protection over the name.

See the GOV.UK guide to setting up an LLP for the current registration requirements.

Expert advice

The above list of benefits and disadvantages is not exhaustive, so always get professional advice before deciding if an LLP is for you.

For more information, see the official government guide to setting up and running a limited liability partnership.