{"id":3146,"date":"2016-09-29T09:56:00","date_gmt":"2016-09-29T09:56:00","guid":{"rendered":"http:\/\/www.johnsonlegaledinburgh.co.uk\/?p=3146"},"modified":"2016-12-05T16:25:03","modified_gmt":"2016-12-05T16:25:03","slug":"limited-companies-llps-spot-difference","status":"publish","type":"post","link":"https:\/\/www.johnsonlegaledinburgh.co.uk\/limited-companies-llps-spot-difference\/","title":{"rendered":"Limited Companies and LLPs: Spot the Difference"},"content":{"rendered":"
Limited companies and LLPs are a lot alike, especially when it comes to the financial responsibility of the owners. However they differ when it comes to things like capital investment opportunities, the flexibility of the internal structure, members\u2019 rights and the way business profits are allocated and taxed.<\/p>\n
So it\u2019s important to choose the right legal structure for your business, or the one you plan to have one day.<\/p>\n
As a general rule, for-profit businesses typically opt for being limited by shares. This structure is also best if you\u2019re planning to employ lots of people or you want to be able to sell shares. Whereas non-profit companies get a better deal by being limited by guarantee.<\/p>\n
LLPs on the other hand come with the same benefits as traditional partnerships, but with less financial responsibility for the owners. This structure is a good idea if you only have a few employees and partners with comparable contributions, rights, responsibilities and profit shares.<\/p>\n<\/div>
In an LLP, all profit is subject to Income Tax during that financial year, regardless of whether members leave their annual profit entitlement in the business or withdraw it. A limited company, however, is more tax-efficient if you\u2019ve made more annual profit than you\u2019ll need to take out of the business. In these cases, it\u2019s better to leave the money in the business to defer that financial year\u2019s tax.<\/p>\n<\/div>
A limited company offers less flexibility than an LLP when it comes to the rights, duties and profit entitlement of its members. And while these are often just verbally agreed between the members, it can be a good idea to draw up an LLP Agreement. This is a document that helps members avoid conflicts by setting out the management structure and other arrangements.<\/p>\n
Businesses typically issue just one type of share, giving each member equal rights and profit entitlement.\u00a0 However, the individual members\u2019 rights and entitlements will still be governed by any particulars attached to their shares. This can make it difficult to change the rights and profit entitlement of shareholders. So most companies will create a shareholders\u2019 agreement to outline the way the company should operate, as well as their rights, responsibilities and duties.<\/p>\n<\/div>