Partnerships are effectively multiple owner sole traders, with few distinctions possible between the two. Limited companies are entirely different and LLP’s are a form of hybrid middle ground, taxed like a partnership but with many of the accounting compliance demands of a company.
Note 1: subject to certain conditions.
Owners have limited liability? x x ? ?
Accounts filed on public record? x x ? ?
Separate legal entity? x x ? ?
Are cash withdrawals taxed? x x x ?
Able to control timing of income/personal tax? x x x ?
May register for VAT? ? ? ? ?
Each structure has benefits and drawbacks and the most suitable vehicle for your business will depend on your particular business circumstances. It is important to point out that it is relatively common for a business to evolve through two or more structures over its life cycle, with self-employment offering simpler accounting and more useful loss relief in the early years, with limited liability and the ability to time income, often becoming more attractive as the business grows.
It is essential to say that there is no ‘one size fits all’ approach. Some professions for example require personal registration, affiliation or regulation and cannot be operated through a limited liability entity. Other businesses are inescapably high risk and require limited liability from day one. In certain cases, bank requirements for a personal guarantee against borrowings may lessen the attraction of limited liability, or customer’s demands or impressions may render one structure more suitable than another.
What is always true however is that it pays to consider all the options as well as taking advice before starting a business to ensure that you pick the structure that is right for you. Unwinding a badly chosen structure is always more complicated and costly than setting up the correct one from the outset.
If would like to discuss which business vehicle would work best for you, please get in touch with a member of our team.