So you’re setting up your own business, and it’s been fairly smooth sailing – as far as these big decisions can be anyway – but now you’ve hit a slight snag; should you be an LLP or Ltd?
The here and now might hot help you at this point – the choice between being a limited liability partnership (LLP) or a limited company (Ltd) might not make much difference at all at the beginning, but in the future it can make all the difference, and that’s what you need to consider.
LLPs are a popular choice. Originally created so that professions could take advantage of the limited liability that a limited company has, now LLPs are used as a way of protecting partners in all sorts of businesses. Registering as an LLP means that the partners within the business are protected should things go wrong.
Without this protection partners can be bankrupted personally if the business goes under.
Although there are no directors, and neither is there a company secretary within an LLP, there are two designated members who work in the same way. And unlike a Ltd company, an LLP can’t be registered as dormant, and must be trading and active.
What about tax?
Tax always rears its head, and of course companies have to pay just like individuals. So tax will be owed whether you are an LLP or a Ltd. The difference is that within an Ltd, the directors are employees, and their salaries are paid just like everyone else’s, so it is subject to personal income tax, National Insurance, and NI contributions from the employer. In an LLP, every member must pay their own taxes, and are really considered self-employed. There is no employer’s NI contributions to pay because of this, but rather than all the profits that are left in the company being subject to a lower rate of corporation tax (as they are with a limited company), in an LLP all the ‘leftover’ profits are considered salaries too, and therefore personal income tax needs to be paid on them.
Now to the future – how many employees are you hoping to have in a few years’ time? If you intend to employ a lot of people, then it will probably be more tax efficient to be a limited company. Plus, if you intend to sell the company in a few years, it’s always going to be easier to sell a limited company rather than a limited liability partnership – that’s because an LLP is always considered somewhat more personal, and it can put buyers off if all they are looking for is a going concern.
Unsure of what you should be setting up? Don’t worry, that’s what we’re here for. Let our efficient team take you through the basics and help answer all your questions in a simple, clear manner, so you can feel confident in your choices.
WE MAKE EVERYTHING EASY BY:
- Offering you practical advice on incorporation
- Filing all necessary information
- Ensuring all legal requirements and obligations are met
- Assisting you with opening your bank account
- VAT registration
- PAYE registration
Given that you’ve got all of the usual duties associated with running your business, it can be hard to find the time to dedicate to your company registration… which is why so many businesses come to Yorkshire Accountancy.
For details on our company formation services, simply contact our friendly team for a no-nonsense explanation. Contact Yorkshire Accountancy today for more information or for your no obligation quote.
