Why llp over company

The following guide looks at some of the benefits and disadvantages of running your business as an LLP registered in the UK. This is particularly suited to accountants, solicitors, architects, consultants, surveyors and other fields of expertise where a partnership is preferred to a limited company.

Within an LLP the earnings of the members is normally seen as personal income. As with all formats of business there will be disadvantages as well as advantages.

The following may be considered disadvantageous in some cases. This is not an exhaustive list but covers some of the key issues that some may feel are disadvantageous for an LLP. An LLP can be registered with any name its members choose as long as it is available at Companies House.

These names are examples and there is no connection to any company registered with Companies House at present or in the future. The LLP can still use either version post registration. Please note Companies House processing times are an estimate only and not guaranteed.

The operation of the partnership and distribution of profits is determined by written agreement between the members. This may allow for greater flexibility in the management of the business. The LLP is deemed to be a legal person. LLP members and the directors of a limited company will generally only become personally liable for the debts or liabilities of the LLP or company in certain limited circumstances such as wrongful or fraudulent trading.

Both LLPs and limited companies are required to file accounts and a confirmation statement annually with Companies House. Both must also create and maintain a register of people with significant control at Companies House. Where certain changes are made to the LLP or company Companies House must also be notified within a certain time. Both LLPs and limited companies can grant fixed and floating securities over their assets as security.

Despite the similarities between the two corporate vehicles, there are a number of key differences which should be taken into account when considering the most appropriate structure for your business:. Both an LLP and a company do offer flexibility in terms of structure, but members of an LLP arguably enjoy greater organisational flexibility and are free to agree the affairs and governance of the LLP between themselves.

The affairs of a limited company must be managed within the confines of the Companies Act , which places stricter restrictions on limited companies than the equivalent LLP legislation.

As a result, LLP members have greater flexibility as to how they share profits, remove capital, their management structure, how decisions are made, and the way in which members are appointed and retire. If the members fail to deal with these matters, the LLP legislation contains some default provisions, although it is best practice to have an agreement in place. This means it is tax transparent in that the entity of the LLP itself is not taxable, and instead the members are taxable as individuals both on profits earned by the LLP and gains on the sale of LLP assets.

The directors will generally be liable to pay income tax on their salaries. The shareholders of a limited company will pay tax on any dividends they receive and on any gains arising when they transfer their shares in the company.

The LLP structure may be more tax-efficient in some cases as it avoids the double taxation situation where the limited company pays corporation tax on its profits and then the shareholders and directors pay additional tax on any dividends and salaries paid by the company.

However, the rate of corporation tax is lower than rates on the higher or additional rate income tax bands. Shareholders also enjoy a tax-free dividend allowance and lower rates of tax on any dividend income received above the allowance, so a limited company structure may be more tax-efficient in some situations.

There are also a number of approved tax-efficient share plans available for employees in private limited companies. An LLP benefits from both of these characteristics. Only two partners are required to form an LLP, and the business is viewed as a separate legal entity. There is no minimum requirement for the capital contributions of members. A capital contribution is the amount of money a member or partner of a business first puts into the business.

LLPs form partnership agreements to govern the running of the business. It is fairly simple for other entity types and law firms to convert to an LLP if they want.

Both entity types must have each of their directors obtain a DSC digital signature certificate and a DIN director identification number. Both business types must file formation documents in order to be legally recognized. These documents include articles of association and operating or partnership agreements. These advantages include:.

LLPs only need two members to form, and they do not have a maximum limit. This allows businesses of many different shapes and sizes to choose to form as LLPs.