What are the advantages of setting up a law firm as an LLP?

Choosing the right business structure is one of the most important decisions when starting or restructuring a law firm. While traditional partnerships remain common, many firms now prefer to operate as Limited Liability Partnerships (LLPs).

An LLP offers the best of both worlds: the flexibility of a partnership and the legal protection of a limited company. It allows solicitors to work collaboratively while protecting their personal assets and maintaining tax transparency.

This article explains the main advantages of setting up a law firm as an LLP and why this structure has become increasingly popular in the legal sector.

Limited liability protection

One of the biggest advantages of an LLP is the protection it provides to its members. In a traditional partnership, partners share unlimited personal liability for the firm’s debts and obligations. This means that if the firm faces financial difficulties or legal claims, each partner’s personal assets could be at risk.

In an LLP, the liability of each member is limited to the amount they invest in the business and any personal guarantees they provide. The firm itself is a separate legal entity, responsible for its own debts. This structure offers peace of mind and allows solicitors to focus on running their practice without risking their personal finances.

Flexibility in management and ownership

Unlike a limited company, which has a formal structure with directors and shareholders, an LLP offers a more flexible approach. Members can agree how to manage the firm through an LLP agreement, which sets out profit shares, responsibilities, and decision-making rules.

This flexibility allows firms to:

• Adapt profit-sharing arrangements to reflect individual performance or seniority.

• Add or remove partners (members) more easily than in a company structure.

• Maintain a collaborative culture while still benefiting from legal protection.

This structure suits law firms where partners want a balance between autonomy and shared control.

Tax transparency and efficiency

An LLP is not subject to Corporation Tax in its own right. Instead, profits are distributed among the members, who pay Income Tax and National Insurance on their individual share. This is known as tax transparency and is one of the main reasons solicitors choose an LLP.

Because profits are taxed at the member level, there is no double taxation (unlike a limited company where profits are taxed first at the corporate level and again when distributed as dividends).

LLPs also allow for tax planning flexibility. Members can adjust drawings and profit shares to reflect performance or financial needs, and accountants can structure the firm to maximise tax efficiency for all members.

Separate legal entity

An LLP has its own legal identity, separate from its members. This means it can:

• Enter into contracts in its own name.

• Own property and assets.

• Borrow money and hold bank accounts.

• Sue or be sued in its own right.

This separation makes it easier to manage professional relationships, take on long-term leases, and enter commercial agreements without tying them directly to individual partners. It also improves the firm’s credibility with lenders and clients, as it demonstrates a more formal and professional structure.

Professional reputation and continuity

Operating as an LLP can enhance a law firm’s professional image. It signals that the firm is well organised, compliant with modern business standards, and built for long-term stability.

If a partner leaves or a new one joins, the LLP continues to exist as the same legal entity. This ensures continuity for clients, staff, and suppliers, avoiding disruption to contracts or bank facilities.

In contrast, a traditional partnership may need to be dissolved and reformed when membership changes.

Simplified profit distribution

LLPs allow profits to be distributed in almost any way the members agree. This flexibility supports both performance-based and seniority-based remuneration structures.

For example:

• Senior partners can receive a fixed profit share.

• Junior partners can receive variable drawings linked to billable hours or new client generation.

• The firm can reinvest part of its profit into growth or reserves.

This adaptability makes it easier to align incentives with performance and retain top talent.

Reduced administrative burden compared with limited companies

While LLPs are required to file annual accounts and maintain some public records with Companies House, they generally face less administration than a limited company.

There is no need to hold shareholder meetings or maintain share registers. Management decisions can be made internally based on the LLP agreement rather than formal company law requirements.

At the same time, solicitors still benefit from a more professional governance structure than a traditional partnership.

Easier succession planning

Succession is a major consideration for law firms. In an LLP, the flexibility of membership makes it easier to bring in new partners, retire older ones, and transfer profit shares over time.

Because the LLP remains the same legal entity throughout these changes, client contracts, leases, and bank arrangements stay intact. This continuity reduces disruption during transitions and allows firms to plan leadership changes years in advance.

Better access to finance

Lenders and investors often view LLPs more favourably than traditional partnerships. The formal structure, separate legal entity status, and published accounts create transparency and accountability.

This can make it easier for law firms to secure loans, overdrafts, or investment to fund expansion, new offices, or technology upgrades. It also gives potential partners confidence that the firm operates under clear legal and financial governance.

Compliance with professional regulations

Law firms in England and Wales must comply with the Solicitors Regulation Authority (SRA) rules. The SRA allows solicitors to operate as LLPs, provided the entity is authorised and all members hold practising certificates.

Operating under an LLP structure can make compliance easier to manage because the firm’s finances, contracts, and liabilities are handled collectively rather than individually. Accountants can also assist with ongoing SRA reporting, ensuring the LLP remains compliant.

Potential challenges to consider

While LLPs offer many advantages, there are a few practical considerations:

• Members are still personally taxed on profits, even if they are not withdrawn.

• Setting up an LLP requires a detailed agreement to avoid future disputes.

• Annual filing requirements make financial information partly public.

However, with professional accounting and legal guidance, these challenges can be managed effectively.

The bottom line

Setting up a law firm as an LLP offers a balance of flexibility, protection, and professionalism that suits modern legal practices. It combines the collaborative culture of a partnership with the security of limited liability and the efficiency of tax transparency.

For solicitors planning to start or restructure a firm, an LLP provides a practical and forward-looking framework for growth, compliance, and long-term success.

With expert support from accountants and legal advisers, a well-structured LLP can help your firm operate efficiently, protect its members, and build a strong platform for future expansion.