LTD Company vs LLP Company

LTD company vs. LLP: if you are thinking of setting up a business in the UK, it is crucial to know the differences between an LTD (Limited Company) and an LLP (Limited Liability Partnership). Both structures offer limited liability, but have key differences in terms of management, taxation and financing. In this article, we will look at the main aspects that distinguish the LTD company vs. the LLP.

1. Structure and incorporation requirements of an LTD company vs. LLP company

A single person can establish and manage an LTD company, acting as both director and shareholder. This makes it an ideal choice for individual entrepreneurs who wish to operate with a formal, limited company structure.

On the other hand, an LLP company requires at least two members for its incorporation. This makes it a more suitable option for businesses that operate as professional partnerships, such as law firms, consultancies or accountancy firms.

2. Liability of members

In an LTD, shareholders or guarantors are only responsible for the amount they have paid or still owe on their shares, or for the sum they have guaranteed. This means that the personal assets of the shareholders are protected in the event of financial difficulties of the company.

In an LLP, the liability of the members is limited to the sum that each member guarantees to pay if the company faces financial problems or goes into liquidation. This structure protects the personal wealth of the members, but with different rules from those of an LTD.

3. Financing and capital in an LTD company vs an LLP company

LTD companies can receive loans and equity investments from external investors, which facilitates business growth and expansion. By issuing shares, they can attract new investors without changing the operational structure of the company.

LLPs, on the other hand, can only receive capital through loans. They cannot offer shares of capital to persons outside the company, which may limit their financing options.

4. Taxation and tax liabilities

Limited liability companies (LTD) are subject to corporation tax, which is currently 19%. This means that the company pays tax on its profits before distributing dividends to shareholders.

LLPs are fiscally transparent entities, which means that the company itself does not pay tax on its profits. Instead, the individual members pay income tax on their share of the profits. In addition, the LLP registers and pays VAT only if its turnover exceeds a set threshold.

5. Management and changes in structure

LTDs must inform Companies House whenever there are changes in management or share structure. This implies a higher level of bureaucracy and regulatory compliance.

In contrast, LLPs offer greater flexibility in internal management and profit distribution. Partners can freely agree on how to divide revenues and change the leadership structure without the need to notify a regulatory body.

Conclusion

Choosing between an LTD and an LLP depends on the specific needs of your business. If you are looking for a structure with flexible financing and a single owner, an LTD may be the best option. If you prefer a partnership model with greater operational and tax flexibility, an LLP may be more suitable. Evaluating these differences will help you make the best decision for your UK business.