Limited Liability Partnership (LLP) can be a good option for those who would like to continue paying taxes and practice similarly as a partnership but enjoy the benefits of a limited company. Some of these benefits are…
-Getting limited liability to the assets owned by the LLP and therefore safeguard liability on personal assets. This means that the debts on the LLP will not affect the partners’ personal possessions as it would happen to a sole trader should the LLP fall into debts (we are not talking about debts due to mal business practice like fraud where partners could be personally liable).
-The LLP will be allowed to get into contracts and own assets in its own right as having a legal personality being different of the partners’ owning the LLP.
-There are some advantages differentiated clearly from the LLP. You enjoy limited liability as a limited company and yet you don’t have to pay corporation tax. You only pay personal tax on your earnings from your profits which are shared among the partners. Where a company has to pay corporation tax and once dividends have been shared taxation applies again. This last element does not happen to the LLP. You pay personal tax as a self-employed person where tax rates applies. Of course, the first £2,000 dividends obtained from the limited company will not be taxed and the shareholder will benefit. Dividends from limited companies are also taxed at different rates than income tax which can also be beneficial to the company’s shareholders.
There is a point that could be overlooked when forming the LLP, this is to have an agreement between partners. In limited companies you need the articles of association and there are model articles available at the time of registering the company. With an LLP the partners will need to sit down and draw their agreement. The danger is where friendship works well it could also go sour and painful, which means even if you have your best friend, most loving partner, it is strongly recommended that you get legal advice to make such agreement. The cost of the agreement will avoid potential and future disagreements which could end up in tribunals or even a court of law when partners fail to fulfil their responsibility in the LLP and/or commit fraud.
There are other factors to take into consideration. The registered LLP’s address (which must be a physical address and in the same country where the LLP is registered) will be seen or available to the public once the incorporation takes effect in the Companies House. It would not be necessary to have a commercial address as registered office address and any of the partners can use their particular residential address if they wish.
Be aware that a Partnership business is governed by the Partnership Act 1890, but the LLP is governed by the Limited Liability Act 2000.
So… what is going to be? Whatever it is try to get good and reliable information you can trust to make the decision that works for you and your business. Taking risks is part of business, taking unnecessary risks could be against your business and you could put at risk not only your investment but also the livelihood of others working for you.