LLP or LTD?

Which is best for you?
Requirements	LLP	LTD
Use partner's tax allowances
Employ non-professional staff
Run a large PAYE scheme
Be taxed as self-employed
Limit the liability of professional partners
Hold shares in another business
Maintain a steady business for a small or fixed number of partners
Expand the business and employ many people
Manufacturing/distribution business
Profession *
Sell shares in the business
*Many professions allow and use the LTD format. Either is possible, but the LLP format was originally intended to meet the needs of the professions.

What are LLPs for?

The 'Limited Liability Partnership" (LLP) format of registered company was originally created to enable the professions to take advantage of limited liability, but its popularity is growing among a much wider range of business.

What officers does an LLP have?

A limited liability partnership does not have Directors or a Company Secretary, but it must have at least two designated members who stand as the company's primary representatives in much the same way as Directors.

What rules are there for LLPs?

The LLP is subject to many of the same rules as a traditional "private company limited by shares", for instance the LLP must report changes to its registered details (including members names and addresses), it must complete an Annual Return and it must file Accounts each year. An LLP must have at least 2 Members (Partners).

What are the trading rules for LLPs?

LLPs must be formed for active trading - they cannot be registered as dormant. A statement on the Companies House forms for LLP registration confirms that the registrants are joining in business for the purpose of making a profit. That excludes non-profit enterprises (such as clubs or charities) and it also excludes non-trading companies ("dormant companies").

Are there tax related benefits to having either an LLP or and LTD?

The key difference that affects the view of many start-up businesses is the tax treatment of the owners (members). In a traditional LTD the Directors (who are also usually the sole shareholders in a start-up company) are treated as employees of their own company. This means that their salary is subject to personal Income Tax and National Insurance and employers' NI contributions. Profits left in the company (not withdrawn as salary) are subject to the (lower) Corporation Tax rate.

The members of an LLP pay Income Tax as self-employed persons, so there is no employers' NI to pay. On the other hand, ALL the profits of the company are regarded as the members' income and are subject to Income Tax.
So the balance of tax advantage depends on how much profit the company might make and how much the owners pay themselves.

Will the number of employees we expect to have affect my choice of LLP or LTD?

If the company expects to employ people and the employee's payroll is likely to be higher than the owners' salary, a "private company limited by shares" may well be more tax efficient that an "limited liability partnership".
If the business is likely to remain as just two or three members who are each making a similar contribution and each draw similar salaries then the LLP option will probably be more tax efficient.
It is wise to discuss the options with your tax accountant.

Will there be any problems if I plan to sell the business at some stage?

One other important factor should be weighed in the balance: how likely is it that the business will be sold as a going concern? A "private company limited by shares" (LTD) is more anonymous and easier to separate from the owners by means of transferring the shares. A partnership is more personal and therefore less straght-forward to separate from the owners.

Can an LLP member be a company instead of a person?

Yes, LLPs can have corporate members (companies). For more information about this option read the article "LLP- the corporate option".

Which is better - an LLP or an LTD?

There is no absolute rule that makes one format better than the other. In any case, if your business changes over the years so that the alternative format becomes more appropriate, it is possible to form a new company of the other type - then transfer the business over to the new company.

For further help on making the choice, or to order your LLP or LTD, call 0117 370 2725 - or click for help (top right).