Set up and register a limited liability partnership

A group of two or more partners can form a limited liability partnership (LLP)

The partners can be individual people or companies. They will jointly run and own the LLP and are known as “members”. There are two categories of member - ordinary and designated.

An LLP must have at least two members at all times and at least two 'designated' members, who have additional responsibility for the company. If there are ever fewer than two designated members then every member is deemed to be a designated member.

The members of an LLP normally share in both the responsibilities of running the business and the profits. Each member’s rights, responsibilities and dividend share, depends on the LLP's partnership agreement, often called the 'deed of partnership'. Individual duties may be assigned according to the skill set and experience of each member.

Ordinary members must behave honestly, not permit conflicts of interest, exercise care and skill and carry out the instructions of the LLP.

Designated members have some extra responsibilities on top of those of ordinary members to ensure compliance with legislation that relates to the business, including legislation covering LLPs

Designated members must:

• register the LLP at Companies House

• prepare and sign the accounts on behalf of the members

• notify Companies House of any changes, including changes to membership, or change to the registered office address

• notify Companies House whenever any of the members' details change.

• prepare, sign and deliver the annual return confirmation statement to Companies House

• deliver the accounts to Companies House

• act on the LLP’s behalf if it is dissolved

• appoint an auditor - if one is needed.

Designated members are legally accountable if they fail to carry out their duties properly.

A limited liability partnership (LLP) can trade under the names of the partners, or some of the partners. You might choose to use an established business name of this kind if you are converting your ordinary partnership to an LLP.

If you want to give your LLP a name that doesn’t include the names of the partners, then read more about the options in choosing the right name for your business.

When naming your LLP keep in mind:

• The trading name should not be the same as, or too similar to, that of any other business name or trademark that already exists.

• It should not contain words that people might find offensive or misleading.

• The name must end with 'Limited Liability Partnership' or 'LLP'.

• You need to obtain permission from the relevant professional bodies to use professional words, such as architect or solicitor, in your business name.

• You’ll also need to obtain permission to use words connected with public authorities, such as health, education, etc.

• Your business premises, website and stationery (such as documents, letters and invoices) must display the trading name and LLP. They must also display the place of registration, the registration number, and the address of the registered office.

Find out how and where you must disclose the name of your LLP on the Companies House website.

You may not be able to use the LLP name you want if that name is already on the registrar's index of company names. However, if the existing LLP or company is in the same group as your LLP and they consent to your proposed LLP name, there can be an exception.

You can check if a company name availability on the Companies House website.

You can register your LLP yourself, or you can use a formation agent to do this on your behalf.

If you are registering yourself, you can register digitally using third-party software: you can download and fill in an application form LL IN01 and send it by post to Companies House with the applicable fee.

It is a good idea to seek professional advice. A company formation agent, solicitor or accountant can carry out the process for you, for a fee, and offer advice. A solicitor will also be able to help you draw up your deed of partnership.

• Search for a solicitor on the Law Society of Scotland website
• Search for a chartered accountant on the Institute for Chartered Accountants Scotland (ICAS) website

When incorporating your LLP you must pay the fees - these vary by the method you have used to incorporate. You can find details of the fees at Companies House.

A deed of partnership (or 'partnership agreement') is a legally binding agreement between the partners who are in business together. It describes how the partnership will be run and the rights and duties of the members themselves. The deed of partnership is usually drawn up by a solicitor, who will consult with the partners about exactly what should be in it.

It's a good idea to have a deed as it can help to prevent misunderstandings and disputes between members.

What does the deed of partnership cover?

As well as giving basic information about the partnership, the deed will usually set out:

• the amount of capital that each partner is to contribute to the business

• the way in which profits or losses are shared between partners, and whether any of the partners should be paid a salary

• working arrangements, such as how much time each partner should contribute to the business and what type of decisions need collective agreement between the partners

• changes to the partnership, such as how new partners can be appointed and what happens if a partner dies or wishes to leave.

If members do not have a deed, they will be governed by the Limited Liability Partnerships Act 2000 (LLP Act 2000) terms. However, the Act does not offer solutions to many of the problems that can arise and may not suit you and your members. Read about the LLP Act 2000 at legislation.gov.uk.

Once you've registered the LLP with Companies House, they will notify HM Revenue and Customs (HMRC). HMRC will then set up the right tax records for the partnership.

Each partner in the LLP must also register for self-assessment separately with HMRC to get their own tax records set up.

LLPs are generally treated the same as general partnerships for tax purposes. Like partnerships, profits are shared among the members of a limited partnership. Individual members - not the limited partnership - pay tax on income or gains. Unlike limited companies, LLPs are not generally liable for Corporation Tax.

The nominated partner will need to also complete a Self Assessment tax return for the partnership every year. Members of the LLP will also need to complete a Self Assessment tax return and show their share of the profits on it.