Starting a new business? Get 40% off our accountancy services for 3 months! 😀

x

If you’re starting a business then choosing the right structure, such as a Limited Liability Partnership or a limited company, can be confusing. There are pros and cons to each, and what works for one business might not be a good fit for another.

We explain how they’re different, who might find each structure most useful, and how to get started.

Tax in a limited company versus an LLP

One of the key differences between limited companies and LLPs is the treatment of tax. A limited company is completely separate from the people in the business, so for tax this means:

An LLP as an entity isn’t taxable, but the members are. So, no Company Tax Return, and no Corporation Tax for an LLP. Instead, the untaxed profits are distributed to its members. They then pay tax on the value of their portion, by completing a Self Assessment tax return.

Other similarities and differences for companies and LLPs

Both limited companies and LLP are registered at Companies House, and both must file annual accounts, but the way that they raise funds and pay members from the business is different.

The company can sell shares in exchange for capital investment – basically selling a chunk of the business to raise money. In an LLP there are no shares, shareholders, or directors, so they don’t have this option.

Public information for companies and LLPs

Whilst a limited company’s information (known as Articles of Association) are publicly available at Companies House, an LLP’s version of this (a Members’ Agreement) is private.

 
accounting services for limited companies

Personal liability for limited companies and LLPs

Private limited companies are ‘limited’ because they ‘limit’ the amount of personal responsibility that members of the business have for any debts. In a private limited company, the personal responsibility (or ‘liability’) of the owners is restricted to the value of their investments or guarantees to the company.

An LLP is a bit like a combination of a normal partnership in terms of tax liability. But, like a limited company, each partner has reduced financial liability. This means that partners aren’t responsible for each others conduct (or negligence).

Members agree an amount that they guarantee to pay should the business run into difficulty, and record it in the partnership agreement outlining their rights and responsibilities.

How many people do I need to set up a company or an LLP?

LLPs must have at least two partners as designated members, but there’s no maximum on how many you can have. You could even set up a dormant limited company, and use that as the second member in your LLP.

As a member of an LLP, there are some duties you must perform.

It’s not unusual for one person to own, manage and register a limited company by themselves, acting as both director and shareholder. Our guide to incorporating a limited company explains the process in more detail, or watch our short video below.

 

 

Should I start a limited company or an LLP?

The structure you choose largely depends on your circumstances. LLPs are useful for companies that usually operate as a partnership, such as accountancy firms or solicitors.
LLPs also can’t be used for non-profit purposes, so you should set up a limited company if you need to operate a non-profit company.

Reasons to set up a Limited Liability Partnership

Setting up as a partnership is a good idea if you’re planning to go into business with other people. In an LLP you’ll still be able to protect your private assets if the business does fail.

An LLP is also more flexible if you know you want to add or remove people in the business, whereas the structure of a limited company is more rigid. For some people though, this is a good thing, as it means everyone in the business must agree to any changes.

 
instant quotes for online accountancy

Reasons to choose a limited company

If you plan to raise money for the business (or to sell some or all of the business in the future) then operating a limited company will allow you to do this. You’ll also need to set-up a company if you’ll be operating a non-profit organisation.

Would you like help choosing your business structure and setting it up? Call us on 020 3355 4047, request a callback, or use the Live Chat button to talk to one of the team!

About The Author

Kara Copple

An experienced business and finance writer, sometimes moonlighting as a fiction writer and blogger.

More posts by this author
guest
1 Comment
Oldest
Newest Most Voted
Inline Feedbacks
View all comments
jane depledge
jane depledge
15th July 2018 12:53 pm

Despite your excellent information baove I am still confused re the best way forward, as to setting up as a sole trader (does that protect my business) as a Ltd or LLP company? I want to put three strands of business under one name so please would you come back to me with the best option as i do not see myself necessarily making money out of this just a living!

Read more posts...

Umbrella Companies for Self-Employed Contractors

When you set up in business as a contractor you might either work as a sole trader or as a limited company….

Read More

Get Ready for Small Business Saturday UK 2022

Small Business Saturday started in the US in 2010, on the first Saturday following Thanksgiving. It aims to encourage shoppers to consider…

Read More

Architects and Tax

Architecture is a highly diverse sector when it comes to tax. It’s partly down to the type of businesses that carry out…

Read More
Back to Blog...

Confirm Transactions

The number of monthly transactions you have entered based on your turnover seem high. A transaction is one bookkeeping entry such as a sale, purchase, payment or receipt. Are you sure this is correct?

Yes, submit my quote
No, let me change it

Please contact our sales team if you’re unsure

VAT Returns

It is unlikely you will need this service, unless you are voluntarily registered for VAT.

Are you sure this is correct?

Yes, the business is VAT registered
No, let me change it

Call us on 020 3355 4047 if you’re not sure.

Bookkeeping

You only need this service if you want us to complete the bookkeeping on your behalf.

Would you prefer to complete your own bookkeeping?

Yes
No

Call us on 020 3355 4047 if you’re not sure.