There are a number of parallels between limited companies and limited liability partnerships, such as the company having its own legal personality and liability restrictions. However, there are a lot of distinctions to consider while choosing the best structure for your company. In this article, why LLP is better than company, we take a look at the process involved and the options available to you.
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What Do The Two Structures Have In Common?
LLPs can be considered to be hybrids of limited liability companies and traditional partnerships. It combines the limited liability enjoyed by members of a limited company with the freedom, confidentiality, and tax transparency of unlimited partnerships. LLPs more closely resemble limited companies than ordinary partnerships. Consequently, limited businesses and LLPs have the following fundamental characteristics:
Incorporation and organisation
Both LLPs and limited companies are registered at Companies House. A limited company will have directors and stockholders, while a limited liability partnership will only have members. Articles of Association (and any corresponding Shareholders’ Agreement) make up the constitution of a limited company. The equivalent for a limited liability partnership is the Members’ Agreement.
Distinct legal personality
Each is an independent legal entity with the ability to enter into contracts, own property, and sue and be sued in its own name. When the members of a limited liability partnership (LLP) agree that the LLP will enter into a contract, they normally bind the LLP in the same manner that directors bind a limited company.
Limits to liability
In contrast to a traditional partnership, members of an LLP or limited company have limited liability, meaning they are normally not responsible for the LLP or limited company’s liabilities. The responsibility of a member of a limited liability company is limited to the unpaid balance of any shares held. A member’s obligation is restricted to the amount of capital he or she agreed to contribute in accordance with the Members’ Agreement.
In most cases, members of a limited liability partnership and directors of a limited company are not individually accountable for the debts or liabilities of the LLP or company (such as wrongful or fraudulent trading).
Filing requirements
Both LLPs and limited companies are required to submit yearly accounts and a confirmation statement to Companies House. Additionally, both must compile and maintain a record of individuals with significant control at Companies House. When specific modifications are made to an LLP or company, Companies House must be reported within a specified time frame.
Fixed or variable fees
Both limited liability partnerships and corporations can grant fixed and floating securities as security over their assets.
What Are The Differences Between The Two Structures?
In addition to their similarities, there are a number of significant differences to consider when comparing LLP and Limited companies. Some of the most significant differences include:
Share capital is exclusive to limited companies and is absent in limited liability partnerships. Instead of shareholders, the LLP has members who are entitled to a part of the earnings. The percentage distribution will be outlined in the members’ agreement.
The shareholders of a limited company may earn dividends, which are subject to dividend tax rates, whilst any profits transferred to members of an LLP are subject to income tax laws (occasionally capital gains). Consequently, the tax paid on distributions can vary considerably.
The form of a limited liability partnership is less restrictive and easier to alter than that of a company limited by shares, which lacks some of this flexibility due to the Companies Act 2006’s tighter requirements. Which is deemed harsher than the corresponding LLP law.
Members of an LLP are believed to enjoy a better degree of privacy than stockholders in a limited company. The articles of association of the limited company are available to the public at Companies House, along with details such as share splits. Profit distributions will be outlined in the LLP’s members agreement, which is not lodged with Companies House and is not on public record.
Choosing between the two structures
There is no simple solution to this question, as each option is superior in particular circumstances. What may be the best option for one company may be disastrous for another. It is essential to analyse the advantages and disadvantages of each option, as well as the business’s potential future needs. Do you intend to sell the company? Do you need to often add and remove business partners? Do you object to ownership information being public record?
The choice between these two entities mostly hinges on adaptability. A limited liability partnership permits its members to join and leave tax-free. Each year, the amount of income provided to each member of an LLP is also adjustable. However, members of an LLP must pay tax on their part of the revenue at their marginal tax rate. However, a company can accrue profits at a lower rate, and only pays taxes at higher rates when gains are taken. Additionally, companies are easier to sell and attract equity capital for.
Other types of entities can be useful if you do not wish to file public accounts, but this type of business typically carries infinite liability for its owners.
How we can help
We have a proven track record of helping clients deal with the process involved in setting up an LLP or limited company. We will guide you diligently and ensure all checks are carried out swiftly and efficiently and we firmly believe that with the right solicitors by your side, the entire process will seem more manageable and far less daunting. You can read more about the range of corporate services we offer by clicking here: https://blackstonesolicitorsltd.co.uk/corporate-legal-services/
How to Contact Our Corporate Solicitors
It is important for you to be well informed about the issues and possible implications of creating an LLP or limited company. However, expert legal support is crucial in terms of ensuring your business is set up correctly.
To speak to our Corporate solicitors today, simply call us on 0345 901 0445, or click here to make a free enquiry. We are well known across the country and can assist wherever you are based. We also have offices based in Cheshire and London.
Disclaimer: This article provides general information only and does not constitute legal advice on any individual circumstances.
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