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By valero
- In Uncategorized
When you are thinking about setting up a company in the UK, one of the first important decisions is what type of company you want to set up. In this new article we answer an interesting question: LLP or LTD: Which type of company is better in the UK?
Each form has its advantages and disadvantages, and making the right choice will have a lot to do with your future success with your company. Let’s get to it!
What is an LTD?
LTD stands for Private Limited Company and is the most common form of company in the UK. It is a type of private company whose shareholders have limited financial liability. This means that they are only financially liable for the value of their shares.
LTD advantages and disadvantages
One of the advantages that we have told you about in some of our articles is that it gives an image of seriousness. This is very important in terms of credibility with clients, banks and potential investors.
An LTD also makes clear the legal separation between the company itself and the owners. This can also help to have more flexibility to distribute dividends to shareholders.
Finally, it should be noted that an LTD has more tools to ensure greater protection of personal assets.
But as with everything in life, behind every advantage there are also disadvantages. For example, with an LTD you will have to assume higher administrative costs and the tax obligations will be more complex and numerous.
What is an LLP?
LLP is short for Limited Liability Partnership, which is a hybrid between a partnership and a company. It is an association of two or more persons, referred to as partners, who manage a business with limited liability.
LLP advantages and disadvantages
The LLP enjoys greater flexibility in internal management and profit sharing, while the liability of the partners remains limited.
It is the preferred type of company for those businesses involved in professional services, such as lawyers, accountants, consultants, etc. This is because its structure suits very well to the particularities of this type of company.
On the other hand, it requires at least two partners to set up and requires more tax obligations than a sole trader, for example.
Your decision will depend on the type of activity you are going to develop and your business needs in the medium and long term.
When to choose an LTD
If you are looking for a classic business model, ideal for almost any type of activity, the LTD is your best choice. It will also help you attract investors or seek bank financing. And, of course, you will enjoy a solid and recognised corporate image.
Remember that an LTD pays Corporation Tax on profits. Dividends may also be subject to personal taxes.
When to choose an LLP?
This company model will be most useful if you are going into business together with other professionals and are looking to avoid the formal structure of a traditional company, but with liability protection. It is a more flexible organisational model.
In an LLP, the partners are personally taxed on profits, as if they were self-employed. This can be advantageous or not, depending on the level of income.
Registration process and costs
Both LTD and LLP are registered at Companies House. You already know that in the UK the processes are simple and can be carried out online.
The registration costs are similar to those we have already mentioned in the other articles for other similar procedures, between £12 and £40. However, the subsequent administrative costs may be somewhat higher for an LTD, as it requires greater accounting rigour.
Conclusion. LLP or LTD: Which type of company is better in the UK?
If you are wondering what type of company is best in the UK, you need to consider your objectives, the sector you operate in and your growth plan. An LTD offers a more corporate image and is perfect for traditional and scalable businesses. An LLP is ideal if you value flexibility and will be partnering with other professionals. If in doubt, it’s always a good idea to consult a specialist UK company incorporation adviser.