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Limited Liability Partnership

A Limited Liability Partnership — an LLP — is a hybrid structure that sits between a general partnership and a limited company. It combines the flexible, partnership-style relationship between members with the protection of limited liability and a separate legal identity. Introduced by the Limited Liability Partnerships Act 2000, it is most commonly used by professional firms — solicitors, accountants, architects, surveyors — where the partnership model suits the working relationship but unlimited personal liability is a risk the members are not willing to carry.

What an LLP is

An LLP is a body corporate — it has its own legal identity, separate from its members. Unlike a general partnership, the LLP itself can own property, enter contracts, and be sued in its own name. The members are not personally liable for the debts of the LLP beyond any agreed contribution — their personal assets are protected from the LLP's creditors in a way that a general partnership's partners' assets are not.

Despite having a separate legal identity, an LLP is treated as tax transparent for income tax purposes — like a general partnership, each member is taxed individually on their share of the profits, not the LLP itself. This combination of limited liability, separate legal identity, and partnership-style taxation is what makes the LLP an attractive structure for many professional firms.

How it is created

An LLP is incorporated by registration at Companies House. The registration requires at least two members — individuals or corporate bodies — and a registered address in England and Wales, Scotland, or Northern Ireland. The registration documents are filed with Companies House and, once accepted, the LLP comes into existence as a legal entity. Unlike a general partnership, an LLP cannot exist without registration — it is a creature of statute.

An LLP does not have a memorandum or articles of association in the way a company does. Instead, the relationship between the members is governed by a members' agreement — the equivalent of a partnership agreement. In the absence of a members' agreement, the default provisions of the Limited Liability Partnerships Act 2000 apply. As with a general partnership, those default provisions are not always what the members would have chosen — making a well-drafted members' agreement essential.

An LLP must file accounts at Companies House annually — meaning its financial position is a matter of public record. This is one of the key differences from a general partnership, whose finances are entirely private.

Liability

Members of an LLP have limited liability — their personal assets are protected from the LLP's creditors, provided they have not given personal guarantees or acted fraudulently or wrongfully. This is the fundamental advantage of the LLP structure over a general partnership. However, limited liability is not absolute. Members who have given personal guarantees to lenders or suppliers are personally liable to the extent of those guarantees. Members who have acted in breach of their duties — dishonestly, recklessly, or in a way that constitutes wrongful trading — may lose the protection of limited liability.

Tax

An LLP is tax transparent — it is not itself subject to corporation tax. Each member is taxed individually on their share of the LLP's profits through Self Assessment, at their personal income tax rate, in the same way as a partner in a general partnership. Members also pay Class 2 and Class 4 National Insurance on their profit share above the relevant thresholds. The LLP itself submits a partnership return to HMRC setting out the overall profits and each member's share.

The members' agreement — why it matters

The members' agreement governs the relationship between the members of the LLP in the same way a partnership agreement governs partners in a general partnership. It sets out each member's profit share, how decisions are made, how new members are admitted, what happens if a member wants to leave, and — critically for estate planning purposes — what happens on the death or incapacity of a member.

In the absence of a members' agreement, the default provisions of the Limited Liability Partnerships Act 2000 apply. These include equal profit sharing regardless of contribution, and no automatic mechanism for dealing with a member's death or incapacity. Unlike a general partnership, an LLP does not automatically dissolve on the death of a member — because it is a separate legal entity. But what happens to the deceased member's interest, and who has the right to act in their place, depends entirely on what the members' agreement says.

No members' agreement — the default position on death. Where there is no members' agreement, the deceased member's interest in the LLP passes to their estate. The LLP itself continues — it does not dissolve. But the personal representatives of the deceased member's estate have no automatic right to participate in the management of the LLP or to vote on decisions. They are entitled to the economic value of the deceased's interest — their share of profits and capital — but not to membership itself. The members' agreement should address this directly: whether the deceased's share is bought out, transferred, or held by the estate, and on what terms.

On death — what happens to the LLP interest

Because an LLP has its own legal identity, it does not dissolve on the death of a member — the business continues. What changes is the composition of the membership and the ownership of the deceased member's interest.

The deceased member's interest — their share of the LLP's capital and their entitlement to future profits — passes to their estate and is dealt with by the executor under the terms of the Will, or the rules of intestacy if there is no Will. The executor has the right to receive the economic value of the interest — but not, in most cases, to participate in the management of the LLP or to become a member themselves without the consent of the remaining members.

A well-drafted members' agreement will include a mechanism for dealing with this — typically a buy-out provision requiring the remaining members to purchase the deceased's interest at a fair value, often determined by an agreed valuation method. This protects both the estate — which receives a fair price for the interest — and the remaining members — who retain control of the LLP without an unknown third party acquiring a stake in their business.

On death — estate planning considerations

A member's interest in an LLP may qualify for Business Relief — reducing its IHT value by up to 100% if the conditions are met. The LLP must be a qualifying trading business — investment LLPs do not qualify. The interest must have been held for at least two years before death. The April 2026 changes introduced a £2,500,000 combined cap on 100% Business Relief — planning around this is covered in the Business Relief Trust Will help sheet.

Life insurance written in trust — structured alongside a cross-option agreement between the members — is the standard way of funding a buy-out on a member's death. Each member holds a policy on their own life, written in trust for the other members. On death, the policy provides the funds for the surviving members to purchase the deceased's interest from the estate. This keeps the business intact and avoids the need for a forced sale or valuation dispute at an already difficult time.

A Will for a member of an LLP should specifically address the LLP interest — what should happen to it, who deals with it, and whether the executor has authority to participate in LLP decisions during the administration of the estate. This is a point that is easily overlooked but practically important — an executor who has no authority to act in relation to the LLP cannot protect the value of the interest during the administration period.

On incapacity — what happens to the LLP interest

An LLP does not cease to exist if a member loses capacity — the entity continues. But the incapacitated member's ability to participate in the management of the LLP is immediately affected. They cannot sign documents, cannot vote on decisions, and cannot fulfil their obligations under the members' agreement. Depending on the terms of the agreement, their incapacity may trigger specific provisions — a right for the other members to buy out their interest, or a period of suspension during which the member's economic entitlements continue but their management rights are exercised by an attorney.

A Property & Financial Affairs LPA — naming a trusted attorney with the authority to deal with LLP affairs — gives someone the legal standing to act on the incapacitated member's behalf. The attorney can participate in decisions, receive profit distributions, and deal with the LLP's administrative requirements on the member's behalf. Without an LPA, the only route is a Court of Protection Deputyship — expensive, slow, and disruptive to the business in the interim.

The members' agreement should address incapacity explicitly — whether the incapacitated member's interest can be bought out, who has authority to act on their behalf pending a Deputyship or LPA, and what protections are in place to ensure the business can continue without being paralysed by one member's inability to act.

"A member of a professional LLP loses capacity unexpectedly. There is no LPA. The members' agreement is silent on incapacity. The other members need unanimous consent to make a significant business decision — but the incapacitated member cannot give it, and no one has authority to give it on their behalf. An application is made to the Court of Protection. The process takes eight months. The decision that needed to be made in week one is still unresolved. The business loses a significant client in the interim. The damage is real — and entirely avoidable."

Key planning points for LLP members

• A members' agreement — addressing profit sharing, decision-making, admission of new members, and what happens on the death, incapacity, retirement, or departure of any member. Reviewed regularly as the membership and circumstances of the LLP change.

• A Will that specifically addresses the LLP interest — what should happen to it, who deals with it, and whether the executor has authority to participate in LLP decisions during the administration.

• A Property & Financial Affairs LPA for each member — naming an attorney with the knowledge and authority to manage LLP affairs if capacity is lost.

• Life insurance written in trust alongside a cross-option agreement — to fund a buy-out on a member's death without disrupting the business or forcing a valuation dispute.

• A review of whether Business Relief applies to the LLP interest — and whether the April 2026 changes affect the planning. Investment LLPs do not qualify — the trading nature of the business matters.