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 disadvantages of being registered as an LLP
Tax. 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.
Public disclosure. 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 so all profit made must be distributed.
Minimums. An LLP must have a minimum of two members – if one member leaves then the LLP could face dissolution.
The advantages of being registered as an LLP
Protection. Like a limited company, the assets of those who own and run the business are kept separate. This provides protection for business owners in a way that being a sole trader never could, particularly where the liabilities of the company are concerned.
Flexible management. While a limited company has a very specific structure under which it must operate, an LLP is not so constricted. The way that the business operates, as well as the way profits are divided up, is defined in a partnership agreement, which provides plenty of 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.
Operation. Members of an LLP can be given different status, which adds flexibility to way in which the entity can be structured.
If you’re considering registering as a Limited Liability Partnership and would like some help, get in touch with us and we can discuss the right options for you.