A limited liability partnership (LLP) is a legal business structure which brings different partners together, providing some with limited liability and others with unlimited liability. In this case, a partner can only operate to the extent of his liability. For example, a partner with limited liability may not be allowed to sign checks on behalf of other partners. The reason behind this is because, due to the limited type of ownership, his personal assets cannot be sold off to cater for losses occurring in the company as a result of his involvement.
The partners with the unlimited liability are the ones who would have to cater for the loss beyond their contribution in the company, meaning that, their personal assets can be sold off. Unlike a limited liability company which is either member or manager managed, a limited liability partnership requires that a board of directors be appointed to oversee the general running of the entity. One of the board members is required to have a general liability type of ownership. Others may acquire the state of passive or limited liability shareholders.
However, these specifications differ from state to state and sometimes from nation to nation. On more general terms, an LLP requires that the members or partners have a limited liability, apart from one of them who must by law have a general partnership. All of the partners must be registered as self-employed. Out of all the members, there must be two who must be recognized as the designated ones. These two will have the responsibility of taking up any responsibilities that may arise or as may be dictated by law. This must be noted in the registrar offices as the LLP gets registered.
In terms of management and profit sharing, a limited liability partnership is run by the members, although they can assign some duties and responsibilities to the employees. Capital to start operations is contributed by the members out of their own pockets, or they may apply for business loans from their banks. All records pertaining to finances must be filed with the companies registration office. At an individual level, each member must process an annual self assessment return and hand it over to the Revenue and Customs office. After the financial records have been processed, profits are shared among the partners equally, unless otherwise agreed upon.
Limited liability partnerships are subject to taxation. Taxation occurs on the profits and are payable to the tax offices. In addition, LLPs must make contributions to the National Insurance Contributions offices for reasons well explained in the LLP Act. The Act is normally revised every so often and the last one that was revised in 2008 provides for the conversion of other existing types of business structures into an LLP structure, provided they observe this financial requirement and others as outlined in the document.