Limited Liability Company or Partnership

Limited Liability Company or Partnership

It is imperative to ensure that your business is the right type of corporate entity but with the various options available, you may be ensure about what type of entity would be appropriate for your business. If so, we at Berry Smith can provide help and guidance.

What are the advantages of a limited liability entity?

The main advantage of being a limited liability entity is that a limited liability entity has a separate legal personality to the members’ or partners’ of the business. The financial liability of the members of partners of the business is limited to a fixed sum, usually being the amount that they have invested in the business, which means that the owners will not ordinarily be personally liable for the debts of the business beyond this amount. Therefore, the owners of a limited liability entity are able to limit their personal liability for debts of the business. 

We can help protect you and your business by preparing the appropriate documentation to incorporate a company to run the business or register it as a limited liability partnership (LLP).

What is the difference between a limited liability company and a limited liability partnership?

The key similarity in these two types of entities are that they are both limited liability entities having limits to its liability. However, there are also various differences between a limited company and an LLP that should be considered when you are deciding how to structure your business.

Some differences, in summary, include but are not limited to the following:

• An LLP requires at least two members whereas a limited company can be run by a single person who acts as a shareholder and director.
• Each partner in a LLP is involved in the management of the business whereas owners of a limited company can delegate management to a board of directors. A shareholder of a limited company does not have to act as a director. 
• Limited companies must be managed in accordance with the rules and restrictions set out in the Companies Act 2006 which is more stringent and rigid than the Limited Liability Partnership Act which governs LLPs. 
• Members of an LLP are treated as self-employed and will therefore need to pay income tax on their profits. A limited company on the other hand, is treated as a separate entity for tax purposes and will pay corporation tax on company profits.
• A limited company can receive loans and offer equity shares to investors whereas an LLP can only receive loan capital. 

If you are not sure whether to set up a limited liability company or a limited liability partnership, we can offer you advice and guidance on the different aspects of each type of limited liability entity and the appropriate considerations to take for your individual business.

Do I need a Partnership or Shareholder Agreement?

These agreements set out how the business will operate, the responsibilities of the partners or members and how disputes will be settled. Such agreements are key in ensuring the smooth facilitation of business operations and internal decision-making. 

You will require either a Partnership Agreement if you choose an LLP structure or a Shareholder’s Agreement if you choose to run your business as a limited company. 

We can prepare a Limited Liability Partnership Agreement or a Shareholders Agreement tailored to the needs of your business, at an agreed fixed price. 

We can also assist with drafting a bespoke or, in appropriate cases, a straightforward Partnership Agreement, where a corporate structure is not appropriate for you and you wish to run your business as an unincorporated partnership, depending on your individual needs.