What’s the difference between an LLP and a limited company?

What’s the difference between an LLP and a limited company?

Selecting an appropriate legal structure for your business is very important, but choosing a structure ultimately depends on the type of operation you wish to run now and in the future.

If you’re not a one-man-band and you’re setting up in business with a partner or multiple partners, you have two main choices in terms of legal structure for your business: a limited company or a limited liability partnership (LLP).

For profit-making firms and those planning on growing their full-time employed workforce, a limited company structure is often the preferred option. It’s also particularly beneficial to those entrepreneurs open to the idea of selling shares in their business in exchange for substantial investment.

The LLP structure came to fruition during the turn of the Millennium and is designed to benefit professionals seeking reduced financial responsibilities. For example, businesses with few or no full-time employees and only a handful of partners – that make equal contributions to the business and take equal shares of business profits – see LLP as a fair legal structure for their organisation.

So whether you’re confused by Corporation Tax or seeking some VAT advice, let’s determine whether a limited company or a LLP would suit your business best.

5 key differences between LLPs and limited companies

1. A sole person can register, own and manage a limited company; named as the director and shareholder of the company. The very nature of a LLP means that it requires a minimum of two partners.

2. The financial liability of shareholders and guarantors of a limited company has a ceiling in line with the total paid or unpaid on their shares or the total of their guarantees. The liability of LLP members is restricted to the figure each member agrees to pay should the business enter troubled waters.

3. Limited companies can accept loans and capital investment from external investors. LLPs can only accept loan capital and cannot give equity in exchange for investment from outside sources.

4. Corporation tax and Capital Gains tax is paid on all taxable income of limited companies. LLP members must pay Income Tax, National Insurance and Capital Gains Tax on all taxable income; usually through self-assessment.

5. Limited companies also work for non-profit businesses as well as profit-making businesses. However, LLPs can only be formed by businesses with the goal of making a profit.

Whether you own a limited company or form part of an LLP, contact SQK Accountancy today (https://sqkaccountancy.co.uk/contact/) for help with your accounting needs.

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