LLP versus LTD: the choice between a limited liability partnership establishment or a limited company formation is a complex one. Different businesses will find one or the other preferable based on the nature of their business and the way in which directors or partners expect to receive income from the business. Coddan Ltd can help you to establish either structure quickly and with the minimum of fuss. We can also give expert advice on whether an LLP or a LTD company establishment would be most advantageous for your business.
LLP vs LTD company: LLPs are governed by a hybrid system of private company and partnership law. If the LLP is subject of a winding up order, then the liability of the members is limited to their capital investment. This makes it an attractive proposition for complex business structures or even for simpler ones where the investors wish to retain their own unique identity within the company structure.
Setting up in business: limited liability partnership vs limited company. Any entrepreneur launching a new business will have many early decisions to make concerning their new business. Not least of these will concern the legal structure of their business. In the UK, there are a number of options including legal liability company (LLC), limited liability partnership (LLP), public limited company (PLC) and limited company (LTD). Smaller businesses with a single person conducting that business can also set up as a sole trader. Each of these business types has been designed to suit particular commercial interests and each has its own benefits and limitations. One of the most common decisions a new business makes is the choice of LLP vs LTD.
Pros and cons: the LLP vs. LTD. One of the first things to realise about the LTD and LLP is that there are considerable similarities. Both will have to be registered with Companies House and will receive a certificate of incorporation. Similarly, both will have to provide annual returns and file annual accounts. Both structures also offer the directors, in the case of LTDs, or members, in the case of LLPs, the protection of limited liability. That being said, there are also significant differences between the two structures. An LLP must have at least two members, whereas one individual can register a limited company. Unlike an LTD, an LLP does not issue shares and need not hold an annual general meeting.
Areas to consider UK LLP vs. LTD private company. There are major differences between an LLP and an LTD when it comes to taxation and how directors or members receive remuneration. This should be a major consideration when deciding on a limited liability partnership vs. limited company. The fact that an LLP does not issue shares can also make it more difficult to raise finance. An LTD can sell shares to investors to raise capital but this avenue is not available to the LLP. Generally, it is also easier to sell or transfer the assets of a limited company and this may be important when deciding on an exit strategy. At Coddan Ltd our LLP establishment advisors can talk your through these options and help you reach the correct decision.
LLP vs. Private LTD Company: if you are thinking of starting a new business, one of the first decisions you will need to make is which type of company to form. The choice between LLP vs. private LTD company involves several factors, so you'll need to be in possession of all the facts before making an informed decision. A company formation agent can help you get your business off to the best possible start by talking you through your options. The number of partners or shareholders involved, how you want to be paid by your new business and complex tax issues are all factors that will contribute to your final decision, so the experience and knowledge of an LLP establisment agent will be invaluable at the start of your company's life.
What is the difference between private limited company and limited liability partnership? When you start out in business you may well face the conundrum of whether to set up as a limited company or a limited liability partnership. Whatever your decision, or if you need advice, Coddan Ltd can help. Both structures have a number of similarities, as they both have to be registered and file annual accounts and both offer limited liability for the members. But there are significant differences, too.
Comparison of LLP and private limited company: just one person can start a limited company, but two designated members are required to take responsibility for an LLP.
A limited liability partnership, on the other hand, does not issue shares, which can make it more difficult to raise finance, but is much more flexible than a limited company. Aside from the two designated members, for instance, others are free to join and leave the LLP at will.
The two are taxed differently, with the LLP offering significant savings in terms of reduced National Insurance Contributions and is much closer to a sole trader model for pure taxation purposes, whereas a limited company pays corporation tax. For overseas clients the LLP can be a great way to streamline their business interests in the UK and to withdraw profits in the most tax-efficient way possible.
A basic difference between the two structures is the fact that a limited company only requires one member whereas an LLP requires two. The liability of members is also different between the two structures. A shareholder of a limited company is liable for any unpaid amount on the shares, whereas a partner in an LLP is liable to pay whatever capital share was specified in the event of the LLP winding up in the LLP partnership agreement.
Other key differences relate to raising capital and changing the capital structure of your business. With a limited company, it is possible for outside investors to contribute share capital or loans and take an equity stake without becoming a director of the company.
With limited liability partnerships only members are allowed to take an equity stake, outside investors may only provide loan capital. Altering the capital structure or transferring shareholding is generally much easier with a limited company than with an LLP. Together, these considerations may make raising additional finance for your business more problematic if you opt for an LLP.
The main consideration for many in choosing between the two structures is the difference in the taxation treatment. For an LLP income tax and Class 4 National Insurance, each member on their share of the profits pays contributions of up to 52%. The LLP itself is not liable for any taxation. A limited company, by contrast, must pay corporation tax of 20-23% on its profits. If members are then paid a dividend from the profits they will have to pay income tax of up to 30.1% on that dividend.
If members do not require to extract profits immediately or pay themselves a salary then choosing to set up a limited company and simply allowing the profits to accrue to that company is an effective way of deferring tax. The profits will be subject to corporation tax each year, but no further income tax will be paid. The limited company can then be liquidated which will result in the members paying capital gains tax on the profits that are due to them. If the conditions for entrepreneur's relief are met then capital gains will be levied at 10%, making this a tax efficient strategy.
If a shareholder in a LTD company is to be paid a salary then that salary will be subject to income tax and Class 4 National Insurance contributions in the same way that profit allocations are in an LLP. However, the limited company wills also be required to pay Class 1 Employer's National Insurance contributions at 13.8%. As this is not a requirement for an LLP, it would be more tax efficient to allocate profits to a member in a limited liability partnership than to pay a salary to a limited company shareholder.
If a business accrues losses then there are significant differences between how an LLP and a limited company are able to treat this. For an LLP, the members will accrue losses in accordance with their entitlement to profits as set out in the trading agreement. These losses can then be offset against their other taxable income up to a limit of £50,000 or 25% of their other income (whichever is higher). Losses accrued by a limited company can only be used within that company and be offset against total profits from the current or preceding accounting period.
LTD vs LLP: a limited liability partnership is also an excellent way to structure a company where one partner is not actively involved on a day-to-day basis. With no real input into the business apart from the capital invested, limited the liability of the members makes the LLP structure very practical and logical. It only requires two members to form an LLP from a physical registered office address; similar to company establishment.
LLP establishment in Scotland, therefore, can help protect your personal assets, while giving many of the tax advantages. Registration is relatively simple; in fact, it is very similar to registering a company with Companies House. LLP establishment has proved especially popular with property investment funds, international investors, and private equity management businesses, professional firms; such as architects, business advisors, family businesses, or businesses with a few investors - although it is suitable for a wide range of businesses.
Take the example of, you and your business partner have a business idea, and you decide to start your business as an LLP, you and your partner will be appointed as the designated members, in time you may find an investor, who will be willing to join your business.
When the third party has joint the business, it always raises the question, how it will this influence your capital structure, or the whole management of your business, if you are running a limited company.
With a limited liability partnership, this process is simplified, you can accept a new investor as an LLP member, but you do not need to appoint him as the designated member, so he will be only the passive investor into your project. LLP legal disclosure obligations are very similar to those of a private company, including the filing of annual accounts.
There are also similar rules for the filing of annual returns, and notifying changes in members' details or changes of the location of the LLP registered office address. However, the LLP partnership agreement stays confidential and is not made available to the public or to the third parties.
The main difference between a limited liability partnership and a limited company is the more informal organisational flexibility of a partnership and tax advantages, including full transparency. In other respects, it is very similar to a limited company. It can obtain a credit rating, borrow against its assets and enjoy many other advantages.
Private individuals in a limited liability partnership are normally liable and responsible for filing their personal income taxes and self-employment taxes, however according to the HMRC; the LLP itself is not responsible for paying corporate or income taxes.
The credits and deductions of the LLP passed through to its members to file on their individual tax returns. Credits and deductions divided by the percentage of individual interest each member has in the LLP. This can be beneficial for members who have a limited interest in the LLP or special tax requirements due to their interests in other businesses.
The members of the LLP are not legally required to provide a written contract regulating the relations between the members and the LLP, as long as there are at least two designated members who take responsibility for the filing of accounts with Companies House and other duties.
Since 2001, LLP establishment in Scotland has become an increasingly popular option for new business incorporation, bearing in mind the fact that an LLP partnership is not for everyone, but then there are clear advantages over the establishment of a traditional company and for those that need a partnership, without the personal liability at risk.
Limited company vs. limited liability partnership: every business has its own characteristics, and no one can say what the better option for you is to start with: register as a self-employed, register a limited partnership, create an LLP, or setting up a limited or even a public company. Every client has different requirements; it would be irresponsible of us to give advice without having sufficient information, therefore, it is recommended that you contact our consultant before proceeding with any order.
Limited liability partnerships and limited companies must be distinguished from one and other, LLP's and its members relations are covered by the LLP Act 2000, while limited companies are regulated by the Companies Act 2006. If you are interesting to form an LLP, please contact us, or apply for the LLP incorporation online.