The 2 most preferred types of UK company setup are a limited company and a limited liability partnership (LLP). An LLP is best suited for trading and other commercial activities (with certain restrictions), and because of its unique legal features, it is more demanded in the professional services sector.
An LLP is useful if you already have a general partnership and want to grow it or if you work in a profession that requires liability protection, such as doctors, solicitors, auditors, etc.
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If you're a member with a director role in your LLP, your earnings are subject to Employer Tax (PAYE) and National Insurance Contribution (NIC). This reduces the LLP's tax benefits as you continue to hire more employees. Thus, expansion becomes more constrained. In this situation, an LTD turns out to be more effective both structurally and financially in the long run.
RTRSupports Limited can help you with the incorporation process if you decide that a UK LLP would be a suited corporate entity for your business.
Also read: How much time does it take to register a UK Limited Company?
Separate legal entity: Both LLP and LTD are classified as separate entities. They are subject to the same rights and duties as a typical person. They both have the ability to sue or be sued in their own names, enter into contracts, and own property.
Filing compliance: For both LLPs and LTDs, the Companies House requires the creation and maintenance of a register of people with significant control. A further requirement is that annual accounts be submitted within nine months of the accounting reference date (ARD). This is carried out in order to update the Companies House on the activities and financial performance. For both entity types, a confirmation statement is also necessary to show that the accounts and other preliminary data are up-to-date.
Also read: UK business bank account for non-residents online
1. In an LTD, a shareholder's liability is limited by the value of their shares, whereas a partnership's liability is subject to an agreement made by the partners.
2. An LLP does not require share capital and its maintenance, unlike a limited company.
3. Members of an LLP are likely to have more organisational flexibility and freedom to discuss the affairs and governance of the LLP among themselves. LTD are subject to stricter regulations of the Companies Act of 2006, which controls how their business affairs must be performed.
4. Each member of an LLP is treated as self-employed and he pays income tax (self-assessment tax) on their share of the LLP’s profits.
But a limited company is treated as a separate entity and it pays corporation tax on the company’s profits. The directors generally pay income tax (self-assessment tax) on their salaries. The shareholders pay tax on any dividends they receive and on any gains arising when they transfer their shares in the company.
5. Limited companies are more attractive from an investor’s perspective, as they can buy shares in a limited company without becoming a director. In an LLP, an investor would have to become a member as a part of the LLP cannot be sold in the same way that company shares can be.
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