Limited Liability Partnership (LLP): Benefits, Registration & Requirements

Limited liability partnership (LLP) defination

A Limited Liability Partnership (LLP) is a type of  business structure that combines elements of partnerships and corporations, offering the flexibility and tax benefits of a partnership while providing limited liability protection to its partners. This hybrid model is particularly attractive to professionals who want to protect their personal assets while enjoying the tax advantages of a partnership. It’s distinct from a general partnership as it offers limited liability protection to its partners. This means that a partner’s personal assets are generally protected from the LLP’s debts and liabilities.

Benefits of a Limited Liability Partnership

A limited liability partnership offers a unique combination of limited liability protection and tax benefits. The extent of each partner’s liability is therefore defined in the partnership agreement, meaning that liability is limited to what the partners invest and any personal guarantees they provide.

When it comes to taxation, LLPs avoid double taxation, allowing partners to pay individual taxes on the income they receive from the partnership. This can result in higher take-home income compared to other business structures.

LLPs are especially suitable for two or more professionals who want to combine their skills and resources in a structured, yet flexible manner.

Types of Partners in an LLP

There are two primary types of partners in a Limited Liability Partnership:

• General Partner:
  • Manages the daily operations of the business.
  • Bears full responsibility for the partnership’s liabilities.
  • Similar to the role of a CEO in a corporation.
• Limited Partner:
  • Invests in the business but does not participate in daily management.
  • Liability is limited to their investment.
  • Acts more like an investor, sharing in the profits without personal liability beyond their contribution.

Requirements for registering an LLP

To register a Limited Liability Partnership, you need the following key requirements:

1. Proposed Business Name for name search approval.
2. Nature of Business/Activities.
3. Names of Partners in Full.
4. Postal Address.
5. Physical Address, including the name of the road, plot number, town, and county.
6. Copies of ID/Passports of Partners/Managers.
7. Passport Photos of Partners/Managers.
8. Consent to Act as Manager.
9. A Letter of No Objection from the relevant organization (e.g., a law firm must obtain this letter from the Law Society of Kenya).

Registration process of a limited liability partnership

• Name Search:
  • Conduct a name search to ensure the proposed name is available.
  • Reserve the name upon approval, pending registration.
• Application:
  • Complete Form LLP1, which includes detailed information about the partners and the business.
  • Sign and submit the form along with the prescribed fee.
• Certificate of Registration:
  • Once the application is processed, a Certificate of Registration is issued to the partners.

Post-Registration Requirements

After registration, LLPs must adhere to several compliance requirements:

• Report any changes in the business to the Registrar of companies within 14 days.
• File an annual declaration of solvency to confirm the LLP’s financial status.
• Maintain at least two partners at all times.

Cessation of an LLP

An LLP may cease to exist through various means:

1. Court Order:
   • A court may order the dissolution of the LLP.
2. Partners’ Resolution:
   • Partners can mutually agree to dissolve the LLP.
3. Strike Off by Registrar:
   • The Registrar can strike off the LLP for non-operation.
4. Cessation as a Partner:
   • Partners may cease acting by agreement, by issuing a 90-day resignation notice, upon death, or upon dissolution of the partnership.

Upon cessation, the partner or their personal representative receives their capital contribution and share of accumulated profits after deducting losses.

Conclusion

Forming a Limited Liability Partnership (LLP) can be a strategic decision for businesses seeking to combine the benefits of a partnership with the liability protections of a corporation. Therefore, by carefully considering the structure, tax implications, and legal requirements, you can harness the advantages of an LLP to achieve your business goals. Remember, while LLPs offer significant benefits, it’s essential to consult with legal professionals to ensure compliance with all regulations and to tailor the LLP structure to your specific business needs.

Contact us; legal1@companyregistrationkenya.com