If you want to establish a company, you need to decide what type of company you need to register as per your business needs. Whether you should start a limited company or a limited liability partnership? Or perhaps you want to incorporate another type of company? Let’s see how a limited liability partnership can be an appealing option for you. Read on this blog till the end to know all about LLP.
What is a Limited Liability Partnership?
Introduced in April 2001 by LLP Act 2000, a limited liability partnership is a hybrid form of business. It is neither a company nor a partnership, rather; it is a mix of both. Alike a limited company, the LLP offers limited liability to partners.
Similarly, like a partnership, here the relationship between the partners is regulated by a private agreement. Additionally, the taxes are levied on it same as a partnership and this business structure does not contain directors and shareholders.
This option is suited for professions that used to operate in traditional partnerships, like accountants, solicitors, dental professionals, etc. With limited liability, it protects the personal finances of the members and there is a reduced financial responsibility, which makes it a preferable option for many small businesses.
Curious to know how LLP is different from a limited company. Let’s find out!
How LLP Differs from Limited Company?
LLP and limited companies both need to register at Companies House, which means that they need to comply with the strict filing and reporting requirements. The advantage of both types of companies is both have limited liability for their members.
A limited company needs to have shareholders and directors, however, a partnership only needs at least two partners to act as the representative of the LLP in legal and other matters. Secondly, a limited company can be a charitable institute, whereas an LLPs need to be a profit-making business.
All limited companies are liable to pay corporation tax while LLPs don’t need to pay, rather, the members of LLP are considered self-employed who need to complete a tax return on an annual basis. In addition, companies entail their management and structure rules in their articles of association (AOA), whereas LLPs don’t need it and can make changes to their internal structure when they want.
When Do You Need to Establish an LLP?
If you fall into one or more of the following circumstances, you need to consider forming an LLP:
- You want to form your business as a traditional partnership business
- You are currently running a traditional partnerships business and want to secure your finances and business liability
- As a partnerships business, you want to work on high-value contracts
- Want to operate a partnership business in a more controlled environment
- Your current partnership business is most likely to incur liability claims
Benefits of Forming an LLP
There are a lot of benefits of forming an LLP, including:
- Tax efficiency
- Limited liability
- Professional status
- Distribution of profits
- Fewer formalities
Disadvantages of an LLP
Here are some of the disadvantages of an LLP:
- Public disclosure
- Fewer investment opportunities
- Profit can’t be retained
- Income tax liabilities
- Needs at least 2 members
- Address requirements
- Reporting requirements
Quick Sum Up
Whether or not your need to establish an LLP depends on the nature of your business and how you want o to operate it. Before registering a limited liability partnership, you need to write down all the rights and responsibilities of each member to avoid future disputes. LLP is a better option for small businesses with fewer members to take a similar level of profit.
Seek advice from our professional tax experts and accountants to be on the safe side. Our Accountants In London offer compliance-only packages for limited companies at an affordable rate – inclusive of preparation and filing of company accounts and tax returns. Reach out today!
Disclaimer: This post is only meant for general information on the topic.