How is an LLP taxed compared with a partnership?

The same way for tax: both are transparent, so the members are taxed personally on their profit shares rather than the firm paying tax. The difference is liability, an LLP gives its members limited liability, which a traditional partnership does not.

Should a law firm be a limited company?

It can suit a firm that wants to retain profit or cap liability, because the company pays corporation tax and profit is taxed on owners only when drawn. But it brings public accounts and regulatory requirements, so it is a decision to model on your figures, not a default.

Do the SRA Accounts Rules apply whatever the structure?

Yes. Where a firm holds client money, the SRA Accounts Rules apply whether it is a partnership, an LLP or a company. The structure changes the tax and liability, not the client-money duties.

Is changing structure a taxable event?

It can have tax consequences on the way in, which is why a change is planned and timed rather than done casually. We model the position first and handle the change so there are no surprises.

Partnership, LLP or Limited Company for a Law Firm

Written and reviewed by the Legal Accountants editorial team. Last reviewed 28 July 2026.

A law firm can be a traditional partnership, a limited liability partnership or a limited company, and the choice affects tax, liability and how the SRA regulates you. Many firms are still in the structure they started in rather than the one that now fits.

This is how the three compare for a firm specifically, and what tends to prompt a change.

The Three Structures

A traditional partnership is the simplest: the partners own the firm and are taxed personally on their shares of the profit as self-employed people, but they carry unlimited personal liability. A limited liability partnership keeps the tax treatment, the members are still taxed on their profit shares, but adds the limited liability of a company, which is why so many firms moved to it.

A limited company is different again: the company pays corporation tax on its profits, and the owners take money out as salary and dividends. It can retain profit and it caps liability, but it brings company filing, public accounts, and its own regulatory considerations for a law firm.

How Each Is Taxed

Partnerships and LLPs are tax-transparent: the firm itself does not pay tax, the members do, on their profit shares, through Self Assessment and the tax-year basis. That keeps things simple but means the members are taxed on profit as it arises, whether or not they have drawn it.

A company pays corporation tax and lets profit be retained inside it, taxed on the owners only when drawn. For a firm that wants to reinvest or smooth partner drawings, that can be attractive, though the salaried-member rules and the detail of how members are rewarded need care in an LLP considering the move.

The Regulatory Layer

Structure is not only a tax question for a law firm. How the firm is owned and managed interacts with SRA authorisation, and a limited company law firm or an alternative business structure has its own approval and compliance requirements. The Accounts Rules apply across all three where client money is held.

So the right answer balances tax, liability and regulation together. We model the tax both ways on your real figures and flag the regulatory implications, rather than pushing a structure in the abstract.

When to Change

The common triggers are growth, a wish to limit personal liability, partners wanting to retain profit rather than draw it all, or a succession or ownership change. A change of structure has its own tax consequences on the way in, so it is timed and planned, not done on a whim.

Our law-firm accountants run the comparison on your numbers and handle the change end to end where it is worth making. To talk it through, tell us how the firm is set up now.