There are significant differences between a partnership and a limited company. Which route you choose to go down for your business depends on factors such as your personal circumstances, type of business and what your needs are in forming a registered business.
Both limited liability partnerships and limited company types have advantages and disadvantages, so it is important to be certain that you are choosing the right type for your business. This guide aims to give you some insight to help you make this decision.
If, after reading this, you have more questions and would like to discuss your options in more depth, please get in touch with our expert team at Perrys Chartered Accountants. We are always happy to help.
A limited company (signified by Ltd or Limited) is completely separate from its owners. Limited companies issue shares which are purchased by the owners of the company. As such, in most scenarios owners (known as shareholders) are only liable for business debts amounting to the value of their investment in the shares of the company. Companies can also be incorporated as “Limited by guarantee” in which case shares are not issued – but company liabilities are guaranteed up to a pre-agreed amount by the guarantors.
A private limited company can distribute profits to the shareholders as dividends. Limited companies often sell shares in the business in exchange for capital investment. If this is your intention as the method of growth for the company, then forming a limited company is the option for you. Likewise, if you are setting up a non profit,making business, a company limited by guarantee is a suitable structure.
A limited company can be owned by just one person, who can also register and manage the company singlehandedly. They can act as a director and shareholder, whether it is just them or they employ others.
Limited companies are liable for Corporation Tax on all taxable profits, which makes it vitally important to engage the services of a specialist accountant for private limited companies. As a Director, you may also be required to submit a self assessment tax return as an individual.
In an LLP, some or all of the partners in the business have limited liabilities. Whilst similar to a standard partnership in some ways (i.e. how the partners are taxed on profits), each partner can have reduced exposure to personal liabilities. If one partner commits misconduct or negligence, the other partners will not be held accountable. With an LLP, members are thus able to protect their private assets should the business fail.
Liability is limited by the amount that each partner guarantees to pay if the business were to experience financial difficulties. All the rights and responsibilities relating to this will be agreed and outlined within the partnership agreement.
Whilst a limited company can be set up with just one individual, in a limited liability partnership at least two members are needed to get started. There is no upward limit on the number of partners permitted.
As an entity in itself, an LLP is not subject to tax. The members, however, are subject to tax. You will not need to file Company Tax Returns or pay Corporation Tax for an LLP. Untaxed profits are distributed to members, and the members are responsible for paying their own tax depending on the value of their interest in the LLP.
A benefit of choosing to create an LLP is the flexibility that comes with it. You can change the internal business structure at will, adding and removing members as necessary. This is not necessarily an option with a limited company, where rules are more restrictive.
Unlike limited companies, LLPs cannot receive investment in exchange for company shares. Indeed, there are no shares with LLPs, nor are there directors or shareholders.
The duties of an LLP designated member include:
Yes. If you wish to set up an LLP alone, then it is possible to set up a limited company and register the limited company as your second LLP ‘member’.
The same works with established and active limited companies, which can be added as partners either at the genesis of the LLP registration or at a later date.
At Perrys Chartered Accountants, we are highly skilled and experienced in the management of accounts for both LLPs and limited companies. We will handle every aspect of the financial matters, so you can get on with the job of running your business. We are also here to offer support and guidance every step of the way, and you will find our specialist accountants a valuable source of advice and knowledge.
If you would like to chat to us, drop us a line today to set up an initial, free consultation on a friendly, no-obligation basis.
We are always happy to hear from you.