An informative article outlining the key differences between a Private Limited Company and a Limited Liability Partnership, alongside the respective advantages and disadvantages of each.
What are the differences between a Private Limited Company and a Limited Liability Partnership?
1. WHAT ARE THE DIFFERENCES BETWEEN A
PRIVATE LIMITED COMPANY (LTD) AND A
LIMITED LIABILITY PARTNERSHIP (LLP)?
2. WHAT IS A PRIVATE LIMITED COMPANY (LTD)?
Most common incorporated business structure.
Owned by shareholders and managed by directors.
Private Limited Companies provide limited liability
to its members because the company has a
separate legal identity to its shareholders and
directors.
Shareholders have no personal liability beyond the
amount they originally paid for their shares.
Shares cannot be offered to the public.
Recognised by having “Limited” or “Ltd” at the end
of their company name.
3. ADVANTAGES OF INCORPORATING A LTD
Private Limited Companies have are a separate legal
entity from their owners, therefore the owners have no
personal liability for the debts of the company.
As Limited Companies are legally registered and
regulated, this portrays a prestigious and professional
image to your consumers.
You may find it easier to obtain credit from banks with a
Ltd corporate structure.
Ltd companies are able to raise funds as a result of
issuing shares privately.
Tax advantages gained through effective tax planning –
as dividends are taxed at a lower rate than income.
It would probably be easier to sell a Limited Company
rather than a sole trader company.
4. DISADVANTAGES OF INCORPORATING A LTD
Less privacy as a result of your
company details being publically
available on the Companies House
database.
Costs of hiring an accountant are
typically more costly for a Limited
Company than a sole trader.
Ltd companies must submit annual
accounts and an annual return to
Companies House, otherwise they
will incur a penalty or be struck off
the register of companies.
5. WHAT IS A LIMITED LIABILITY PARTNERSHIP (LLP)?
LLPs also have a separate legal
personality.
LLPs must have at least two members.
The LLP is liable for the full extent of its
assets.
An LLP is managed by all of its
members.
LLPs must prepare and file annual
accounts and an annual return to
Companies House.
Members are entitled to an equal share
of the company’s capital and profits.
6. ADVANTAGES OF INCORPORATING A LLP
LLPs were formally
established in 2000.
Midway between a
partnership (business
liability) and a corporation
(business security).
Flexible management
structure which can be
decided within a
Partnership Agreement
that is not made publically
available
7. DISADVANTAGES OF INCORPORATING A LLP
It can be more difficult to gain
funding – unable to raise capital
by issuing and selling new shares.
You are unable to leave a LLP
dormant, therefore you cannot
reserve your company name for a
future project through dormancy.
There is no legal requirement to
have a Partnership Agreement
and if the LLP does not have one
governing internal relationships,
issues could arise.
8. SIMILARITIES BETWEEN LTD AND LLP
Both have a separate legal identity to the directors.
Both allow limited liability to the amount directors and/or
members originally paid for their shares, so less risk
associated.
The company itself is liable for its assets.
9. HOW DO I FORM A PRIVATE LIMITED COMPANY?
Within the UK, there are 3 procedures
through which to incorporate a Ltd company:
1) Companies House – you are required to
fill in the relevant forms with limited
support.
2) By means of a Lawyer or an Accountant
– most expensive method.
1) By means of a specialised Company
Formations Agent – for instance Wisteria
Formations.
10. W: http://www.wisteriaformations.co.uk
@: formations@wisteria.co.uk
T: +44 (0)844 893 0808
A BIT ABOUT WISTERIA FORMATIONS...
UK Company Incorporation for £24.99.
Easy 10-step application process online.
Free business bank account referral with HSBC or Barclays.
Free consultation with a Chartered Accountant or Chartered
Tax Adviser to get your business off to the best start!