Partnership or LLP – Which is the Right Vehicle?

Gary Green
Gary Green
August 6, 2020

For the majority of organisations, choosing a business vehicle comes down to either Partnership or LLP (limited liability).

But as an organisational head or owner, how do you know which business vehicle is right for you?

How to choose between Partnership and LLP

The right business vehicle for you can be narrowed down to both individual circumstances as well as a range of varying factors, like legal requirements and tax considerations, among other things.

Let’s look at some of the key differences to help you decide.

Partnership – Why this could be your ideal business vehicle

The main underlying difference between a limited company and partnership is that the former is a completely separate legal entity. However, within partnerships, there are traditional partnerships and limited liability partnerships (LLP).

We need to consider both in order to see for ourselves whether it makes more sense to choose partnerships or either one of the LLPs as a business vehicle.

Traditional partnership

In a traditional partnership, you and your partner or partners own the business and must absorb all liabilities. This can be beneficial for a number of reasons:

  • No filing requirement as such – which means no need to register your organisation at Companies House or pay the associated fee;
  • Simply draw up a partnership agreement which defines the business structure, along with the unique roles and responsibilities of each partner;
  • There may be tax benefits because no National Insurance Contributions need to be paid and income is drawn in the form of earnings, not a PAYE salary.

Limited liability partnership (LLP)

This ‘hybrid’ vehicle was intended to combine some of the key benefits of a partnership with a limited company business structure. It’s become rather popular today for several reasons including:

  • Should a business go bankrupt, any unpaid debts are not the partners’ responsibility. The limited liability structure ensures that creditors do not have the authority to ask for compensation against what the failed business owns, such as personal income or assets;
  • Through LLP, you can tap into some of the key benefits of a partnership-style structure – leverage a variety of skills and experience from different people, pool resources, spread out the risk more evenly, distribute work fairly, etc;
  • Partners can get involved in management activities;
  • LLP is deemed a trustworthy and credible option where a corporate structure is in place, making it perfect for most professional services companies.

Limited Company – Why this could be your ideal business vehicle

The limited company business vehicle was specifically designed to facilitate running a business. It provides clarity and protection which other legal entities do not afford. Benefits include:

  • Personal liability remains as low as possible and shareholders are only held liable for unpaid amounts owed on their shares;
  • Highly credible structure – perfect if you want to create a professional impression and establish trust with your clients;
  • Investments are far easier to manage;
  • More tax efficient – shareholders only get taxed on their withdrawings and not their profit share;
  • Good way to protect your business name since others can’t use it.

What it comes down to

While the above are just some of the benefits at a glance of choosing either business vehicle, there are actually quite a few factors that must be carefully considered.

If you require any help with your business structure and tax duties, we at Key Business Consultants LLP have an expert team of accountants who will be able to assist. Get in touch with us today.

Interested in our services?
Fill in your details and a member of our experienced team will be in touch shortly to discuss your needs.
We adhere to strict GDPR rules and do not reveal or sell your data to any third-parties. For more, please read our Privacy Policy.
Latest Insights
September 27, 2021
Choosing The Correct VAT Scheme For Your Business

Choosing the right VAT scheme is an important step for small business owners and can have a considerable...

September 21, 2021
How to Claim EIS Income Tax Relief in 2021

If you need to know how to claim EIS income tax relief and enjoy what is...

September 2, 2021
Recovery Loan Scheme - What Is It and How Do I Apply?

As businesses seek to re-open and recover from the global pandemic, there are various forms of...

August 16, 2021
The Super-Deduction Scheme - How Does It Work?

You may have heard the term 'super-deduction' recently and wondered if you could be affected by...

August 12, 2021
The Tax Benefits of Non-Domiciled Status for UK Residents

Having a Non-Domiciled Status if you reside in the United Kingdom can have great benefits for...

July 9, 2021
Stamp Duty Land Tax (SDLT) Surcharge for Non-UK Residents

Stamp Duty Land Tax (SDLT) rates have changed again for non-residents buying a home in England...

July 7, 2021
How Is Cryptocurrency Taxed & Do I Need to Fill A Self-Assessment?

Cryptocurrency may live online with no government control or borders, but if you are in the...

July 5, 2021
Venture Capital Schemes: Tax Relief Guide For Investors

When it comes to finding out what tax relief is available for investors using a venture...

July 2, 2021
Claiming Business Asset Disposal Relief in 2021

Business Asset Disposal Relief (BADR) used to be known as Entrepreneurs’ Relief before 6 April 2020....

View Our latest insights »
Get the latest UK tax & business news and guidance delivered straight to your inbox
We care about the protection of your data. No spam. Unsubscribe anytime.
Copyright © 2021 Key Business Consultants LLP. Reg: E&W OC389322
linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram