A General Partnership (GP) and a Limited Liability Partnership (LLP) are two different types of business structures that have different characteristics and advantages.
General Partnership (GP)
A GP is a business structure in which two or more partners share ownership and management of the business, and are personally liable for the business’s debts and obligations. This means that if the business is sued or incurs debt, the partners’ personal assets are at risk. GPs are relatively easy to set up and maintain, and they are typically used for small businesses where the partners are actively involved in the day-to-day operations.
In terms of taxes, GPs are considered pass-through entities, meaning that the business itself does not pay taxes on its income. Instead, the income and losses are passed through to the partners, who report their share of the income on their personal tax returns. GPs are also not required to file separate tax returns, but they are required to file information returns with the HMRC to report the allocation of income and losses among the partners.
In terms of legal structure, GPs are not considered a separate legal entity, meaning that the partners are personally liable for the business’s debts and obligations. This includes any legal judgments against the business and any debts the business may incur.
Formation of a GP is relatively simple and can be formed by a verbal agreement, or a written partnership agreement, which is not filed with any state agency.
Limited Liability Partnership (LLP)
An LLP is similar to a GP but with one key difference: the partners are not personally liable for the business’s debts and obligations. This means that if the business is sued or incurs debt, the partners’ personal assets are protected. LLPs are typically used by professional firms, such as law or accounting firms, where the partners want to limit their personal liability while still retaining control over the business. LLPs are also required to file annual accounts with Companies House and pay annual fees.
In terms of taxes, GPs and LLPs are treated similarly in the UK, both being pass-through entities, meaning that the business itself does not pay taxes on its income. Instead, the income and losses are passed through to the partners, who report their share of the income on their personal tax returns.
