What are the differences between Limited and LLP in the UK?
The main difference between a Limited Company and a Limited Liability Partnership is that the LLP does not pay Corporation Tax. Limited Companies pay corporation tax. It makes LLPs more attractive from the tax perspective to non-resident owners.
Private limited companies can be formed with one person. Limited Liability Partnerships require two members.
Limited Liability Partnership is not required to call and hold meetings. The advantage of LLP formations instead of a limited company for small businesses is the simplicity of the legislation. A UK limited company has a more complex regulation, better suited to large companies, where certain decisions are effected by either the directors or through a resolution (ordinary, special, etc.) by the general meeting.
There is no minimum capital requirement for a private limited company. UK private limited companies of small or medium size may file modified (i.e. simplified) accounts at Companies House, rather than full accounts. A UK LLP must file accounts and returns as well.
It is not always easy to make a decision between LLP or a LTD Company. To help you to compare and decide what is most suitable to your business needs, please refer to the table below.
Comparison Table of Tax, Legal and Structural Features – UK LLP vs UK Limited
|UK Company Features||UK Company (Ltd. Company)||Limited Liability Partnership (LLP)|
|Law and Regulations||UK Companies Act 2006||Limited Liability Partnership Act 2000|
|Liability||Limited by shares and guarantees||Limited by the amount of capital contributed|
|Share Capital||Minimum share capital required is 1p (recommended £1,000)||No regulations — no shares, no minimum set for capital contribution|
|Corporate structure||One (1) director minimum (company or individual, national/non-national, resident/non-resident) No secretary required in a private limited company, but it is strongly advised, otherwise, the duties will fall on a company director||Two (2) designated members minimum (company or individual, national/non-national, resident/non-resident). A member executes compliance duties. No maximum is set for number of members|
|Meetings||Requirements for meetings and AGM (Annual General Meeting)||No requirements to call or hold meetings|
|Profits withdrawal||May withdraw earnings through dividends, not subject to NI contributions, or immediate capital gains tax only if the accumulated profits meet the capital maintenance requirement||Profits are distributed as per the LLP Agreement. Members of LLP can withdraw profits from regardless accumulated profits; there are no ‘capital maintenance’ rules for a UK LLP|
|Penalties||Professional negligence of a member may result in a personal liability. Can be banned from future Director positions||Professional negligence of a member may result in a personal liability|
|Disclosure||Shareholders details and profit share is available to general public||Partnership Agreements are not available to general public|
|Accounts and Annual Returns||Accounts and Annual return must be filed together with various other returns. Small or medium size companies have abbreviated accounts||Accounts and Annual return must be filed together with various other returns|
|Record Keeping||Required to call, maintain and record details of the Shareholders/Directors meetings||Not required to hold, maintain and record details of the Members meetings|
|Tax||Subject to full corporation tax, but a UK Private Limited Company will not pay Corporation Tax if members are not UK companies and there is trading no trading or profit making in the UK||Treated as an ordinary partnership, partners are pay income tax on their share of the profits; they pay capital gains tax on any revenue made on the sale of partnership assets.|
|Set Up and Registration Requirements||
||The name of the LLP The address of the registered office The name and address of each member of the LLP. It is not necessary to register a copy of the partnership agreement or other constitution.|
|Certificate of Incorporation||Companies House issues a certificate of incorporation||Companies House issues a certificate of incorporation|
|Names||UK private limited company (by shares) must have the word ’Limited’ or ’Ltd’ at the end of its name; it must not be the same as one already registered; it must not contain certain sensitive words without permission; it must not suggest an association with the government; it must not be offensive||The name of the LLP must not be the same as one already registered; it must not contain certain sensitive words without permission; it must not suggest an association with the government; it must not be offensive|
|Limited company is made up of directors and shareholders unless it is a company limited by guarantee||The partners in a LLP are called member not partners|
The above comparison table should be able to guide you to make the right decision with what business structure is more suitable for you. If in doubt on what structure to choose, please send us an e-mail and we will refer you to an accounting practice for further advice.