Limited Company or Limited Liability Partnership
Operating a business in the UK offers several different legal and informal structures. The structure you choose will depend on your personal circumstances, the number of people involved and the type of business you are running.
Do you need to register a company or an LLP?
The most informal structures are sole trader businesses and unregistered partnerships. These businesses have no legal structure and can provide flexibility for the owners of the business. Unfortunately while they may be flexible they offer little protection to the individuals behind the business. Many businesses start as sole traders and often switch to a registered company or partnership.
Formal registration of a typical business at Companies House offers two options. You can register as a company limited by shares (LTD) or you can register a limited liability partnership (LLP). Both of these options are recognised legal structures.
These are the most common business structure in the UK. Registered companies will have LTD or LIMITED in full at the end of the company name. They are suitable for most types of profit making business and offer flexibility in the ownership and distribution of profit between owners. Limited companies protect the owners of the business from potential liabilities (as long as the business is run correctly).
Benefits of being a limited company
Limited liability. The company is a separate legal entity to the owners.
You can operate a company with one sole owner. You do not need to appoint two people as shareholders or directors.
Defined ownership by shareholding. You can issue different amounts of shares to different shareholders.
Flexible profit distribution. Profits can be distributed to different shareholders by creating different share classes.
Profit (or loss) can be rolled over to the following year. This can have tax advantages especially if business income may fluctuate.
Registering a company name will prevent another business from registering an identical name.
Limitations of being a limited company
Losses cannot be offset against shareholders other income streams that year. Partners in an LLP can offset losses against other income.
In some circumstances an LLP may be more tax efficient.
You have to prepare and submit accounts every year to HMRC and Companies House. All business should keep accurate accounts but a limited company must prepare these in the correct format for Companies House.
This format is often chosen by ‘professions’ due to the simplicity and clarity of the tax due on profits. Any profit made by the partners within an LLP is liable to income tax which is paid by the individual. In a company the profit that is extracted by dividend is liable for corporation tax and then the shareholder pays income tax (allowing for the fact corporation tax has been paid). LLPs allow partners to earn their own income. It is common for accountants, solicitors, architects and similar business to be formed as an LLP.
Benefits of being an LLP
Limited liability is similar to that of a company and protects the partners.
Registering the partnership at Companies House prevents another business from registering an identical name.
Profits are distributed to the partner generating the profit.
Different levels of membership can be established within the partnership.
Corporate structuring. You can appoint another company or another LLP as a member of the LLP
Limitations of being an LLP
There must be a minimum of two partners. If partners retire, resign or die leaving only one sole member the LLP will need to close or find a new person to become a member.
LLP partnership agreements should be professionally drafted to clearly define how the business is managed between partners.
Profits cannot be rolled over from one year to the next.
Profit is extracted as personal income. It cannot be taken as a dividend which in some circumstances can be more tax efficient.
Registering your company or LLP
You can easily register a new company (LTD) or Limited Liability Partnership (LLP) online.
Using our website your can choose to register either an LTD or LLP in just a few hours. We have made the incorporation process as simple as possible.
Most of our website visitors will probably register a company. However, if you believe that an LLP may be the correct business vehicle for you then we are pleased to offer LLP registration cheaper than Companies House. If you are not sure of the best option you may want to discuss this further with an accountant. We provide this information as a guide and any information on our website should not be taken as tax advice.
To get started simply enter your preferred name on our site and we will check if this is available for you.