What Are The Differences Between LLP And LTD In The UK?

Registering a company in the UK is beneficial for a number of reasons: a stable economic system, improving the company’s image, favourable tax conditions, and the ability to receive international payments without restrictions. To reduce the costs of doing business and ensure its prosperity, it is important to know the nuances of local legislation – in particular, the difference between legal forms and how to check if a business name is available for free.

What Do LLP And LP Mean?

An enterprise in the form of an LP has the right to engage in entrepreneurial activities but is not considered a legal entity. Typically, investment funds and small firms are opened in the LP form.

To open an LP, you need at least two members: a general partner, who is responsible for all the company’s obligations, and a “limited partner” (his liability depends on the amount of the contribution). When debts arise, they bear personal financial responsibility.

To register an LP you also need to choose a name, provide an address, and submit an application to Companies House, HMRC, and VAT (for incomes over £85,000).

The procedure for opening an LLP in the UK is similar to registering an LP: at least two partners, name, address, and filing applications. It is also required to draw up an agreement that includes rules for making decisions, distributing income and responsibilities between participants, accepting new members, and leaving the organization. Managing such a business involves maintaining accounts and filing them with Companies House.

Partners in LPs and LLPs can be either individuals or legal entities registered in England or abroad. Both forms of business do not pay income tax. The income of the company is divided among the members in accordance with the agreement or in proportion to the size of their contributions. Each partner personally submits a tax return, which allows you to optimize costs.

What Does LTD Mean?

LTD is a private limited liability company. LTD registration obliges the owner to fulfill the following requirements:

• pay income tax at the rate of 19%
• maintain financial statements and submit them to regulatory authorities every year
• have an office in this jurisdiction

In order to open a company in the UK in the form of LTD, it is required to appoint a director (this can be a non-resident) and a secretary (optional). An organization must have at least one shareholder, who can also serve as a director. The minimum amount of authorized capital is not defined.

LTD is one of the most popular types of business in the UK. This form of organization creates trust among clients and investors, as the LTD reports on its activities. In addition, the owner’s personal assets are protected even if the company goes bankrupt.

LP (LLP) Or LTD: What to Choose

When choosing a legal form, we recommend focusing on three main criteria:

• Features of taxation. In LPs and LLPs, partners pay tax on their income by filing
  returns. LTD is subject to corporate tax.
• Investment opportunity. LTD shares are available for purchase for investors.
  Investing in LPs and LLPs requires entering into a partnership.
• Material liability. Members of LP and LLP are responsible for the company’s debts.
  The volume of obligations is determined by the amount of invested funds. LTD
  owners are not personally liable for the company’s debts.

It is also important to take into account such a factor as the company’s image. Investors tend to trust LTD more due to the transparency of the reporting provided. If the purpose of registering a business abroad is to attract financing, then we recommend choosing LTD.

LLP Registration: Step-by-step Process

Registration of a limited liability partnership occurs as follows:

1. Choosing a name. It must end with “Limited Liability Partnership” or “LLP”, not be the same or too similar to existing ones, not be offensive, and not contain undue references to the government or local government (such as “Accredited”).
2. A company may also have a “business name” – the name under which it operates. You can check the name availability for free on specialized sites. It does not have to be registered but must be indicated in official documents along with the official name and details of partners.
3. Selecting an address. The company must have a physical address in the country where it is registered. You can use the address of one of the owners, but keep in mind that it will be publicly available.
4. Drawing up an agreement. It states how profits will be distributed, who makes the decisions, what the responsibilities of the partners are, and how partners can join/leave the partnership.
5. Submitting documents to the Companies House. This can be done online, by mail, or through an intermediary agent.
6. Registration of bank accounts and corporate accounts in payment systems for conducting settlements with clients.

Taxation of LLPs

Limited partnerships do not pay corporation tax in the UK. Instead, profits or losses are reported on the personal returns of the partners who receive income from the company’s activities. If the partners are not resident in the UK and the profits are earned outside the UK, there is no taxation: income tax is payable in the country where the beneficiaries have residence.

In addition to income taxes, a company may face the following fees:

• excise taxes – on the sale of alcohol, tobacco, gasoline, and some other goods
• annual municipal taxes on real estate and stamp duty on its purchase
• VAT (for most industries – 20%)

Wrapping It Up

There are a number of reasons why entrepreneurs wishing to open a business abroad choose the UK. This is a respectable jurisdiction with a stable economy and legislation. The taxation system is friendly to non-residents, and you can open a company remotely in just a few days. If you are planning to open an LLP or LTD, then first of all you should check the name for the business, whether it’s available for free. This can be done for free. To obtain a legal address and other useful virtual office services, we recommend contacting The Hoxton Mix.