There are many different vehicles you can use to set up your business. You might start out as a simple sole trader, paying income tax and remaining unregistered.
However, as you begin to expand you might look for a more structured framework. The LLP (Limited Liability Partnership) is a flexible business vehicle that has been specifically designed for the modern working world.
It was created in 2000 and is now widely used. If you’re considering registering as an LLP, then there are a number of advantages and disadvantages to consider.
The advantages of being registered as an LLP
Like a limited company, the assets of those who own and run the business are kept separate. This provides protection for business owners that being a sole trader can’t offer – especially in terms of debts and liabilities.
While a limited company has a very specific structure under which it must operate, an LLP is more flexible. You’ll define the way that the business operates and the way profits are split up in a partnership agreement. This means more scope for catering to individual business needs.
Name and status
Once an LLP is registered at Companies House, its name is protected from any other businesses that may come along and try to register the same name.
An LLP is also treated as a legal person in its own right, which means that it’s capable of being party to contracts; signing leases; employing staff; and owning property.
The disadvantages of being registered as an LLP
Members of an LLP are taxed on what they receive as a share of income from the LLP – how much is paid depends on where the income leaves them in terms of standard income tax bands.
So, 20% is due on any income up to £33,500, then 40% on income between £33,500 and 45% on income over £150,000. This is a more costly way to receive income than via a limited company.
LLP accounts must be submitted to Companies House, which puts them on the public record.
Profits can’t be retained
Unlike a limited company, there is no option to retain profits for the following year. All profit made must be distributed in the same financial year.
Minimum membership of two
An LLP must have a minimum of two members. If one member leaves, then the LLP could face dissolution.
How Appleby Mall can help
We are accountants in Wolverhampton and if you’re considering registering your business as a Limited Liability Partnership and would like some help. Feel free to get in touch with us and we can discuss the right options for you.