When you are thinking about forming a company, it is important to consider the type of structure that you choose when you register your company. Undoubtedly, a Limited by Shares company is the most well-known type of company structure out there.
It offers businesses the chance to look more professional and offers the chance to have as many shareholders as you like.
However, it is important to consider what type of structure is best for your kind of business, not what is the most popular option. It might be worth considering the benefits of another kind of company structure – this example being an LLP (Limited Liability Partnership).
This is also something that we offer here at Company Formation MadeSimple click here for more information.
Definition
The basic definition of an LLP is a partnership company with a minimum of two members. It is offered flexible terms of a partnership and is taxed accordingly. It is also a separate legal entity which limits the liability of its members if the business were to fail.
If you are looking into an LLP then there can be some excellent benefits to be gained from registering as this kind of company.
The Limited liability of its members
The title is a bit of a give away admittedly, but an LLP really does offer some very flexible terms for its members. This includes a number of different things including:
- All members can leave an LLP without major hurdles.
- The fact that an LLP is a separate legal entity means that the liability of members will be much more limited.
- An LLP generally offers more flexibility in changing its internal structure.
- This can be very useful in terms of establishing rights, duties and the way profits are distributed.
Tax Breaks
If you are a member of an LLP then you are taxed in a particular way which is different to other kinds of companies.
- LLP members are given a self-employed status. This means that National Insurance contributions are significantly less than it would be in a Ltd company structure – where shareholders are considered employees.
- There are more opportunities to qualify for Entrepreneurs’ Relief as a member of a limited company than there are as a shareholder in company.
- As an LLP member you will stand a greater chance of qualifying for Business Relief.
Allocation of profits
As stated earlier in the blog, one of the main benefits of having an LLP is that it allows for greater flexibility which includes the way profits are distributed to members.
- The amenable nature of an LLP agreement allows for things to be changed at any point – providing all partners agree.
- This includes allocation of profits and share capital which is rather simple to do.
- Conversely, a traditional limited by shares structure is much more rigid and any significant changes need to be done formally and sent over to Companies House.
It can be useful for particular ventures
Many professional bodies form themselves with an LLP structure – indeed a great number of accountancy firms, law firms and other professional bodies will form as an LLP. There are certainly strong factors as to why this is the case.
According to The Brazilian Chamber of Commerce in Great Britain LLP
“is now frequently used for financial services and fund management ventures. It can be structured so as to provide the management required, whether close control or loose regulation, and in particular it can provide for the different earnings and bonus schemes found in these areas”
Equally, some non-profit bodies may find an LLP arrangement better when they wish to enter into a kind of joint venture with an external party. So if you feel that your business may fall into any of these levels then it’s certainly worth considering forming your company as an LLP.
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By David Goulden at MadeSimple – Find David on Google +