What is a Limited Liability Partnership?

The differences between a limited company and a sole trader are reasonably well understood. A sole trader is an individual whose personal identity and business identity, even when trading under a business name, are essentially one and the same. For a sole trader, debts and obligations of the business belong to him/her personally and vice-versa. A limited company, however, is a legal entity in its own right and in most circumstances is responsible for its own debts and obligations alone. There are strict rules governing limited companies; how they operate; and how they’re scrutinised, For the most part, sole traders have far fewer statutory obligations imposed upon them.

A regular ‘partnership’ between two or more self employed sole traders exposes the partners to personal risk for their shared business, however, the lack of flexibility and increased governance required to incorporate and become a Limited Company can be off-putting, even when the additional protections of limited company status is considered.

A Limited Liability Partnership (LLP) Limited Liability Partnership is a form of legal entity which was introduced in 2001 and sits somewhere between the two. This allows the partners to retain the flexibility of the partnership and continue to be self employed for tax purposes, but because an LLP is its own legal entity, the partner’s liability to the company and, therefore, for its debts are, as the name suggests, limited. Although, it has to be said, not as much as a fully incorporated entity.

Insolvent LLP’s – Who bears responsibility?

The responsibility for the liabilities of an LLP rests with the LLP itself much the same as in a limited company. However, the major difference with an LLP is the power a liquidator, or administrator, has to reclaim from the members of the LLP drawings that they may have had in the two years before the business became insolvent. In addition, HMRC can make the members of the LLP personally liable for the tax on their share of profits even though a provision for tax may have been deducted from the profits before drawings were paid.

The measure of an insolvent LLP is roughly the same as a Limited company. If the business liabilities exceed the total value of assets, or the business cannot pay its debts as and when they fall due, then the business is insolvent.

If you’re a partner in an LLP and are concerned about the insolvency of the business then the sooner you seek assistance, the better the outcome is likely to be.

We have extensive experience of helping companies facing insolvency and wherever possible turning such businesses round. Speak to us to find out how we can help you get the best outcome for your partnership.