Comparing Company / Limited Liability Partnership / Partnership For Trading Activities Undertaken By Groups Of Individuals For 2013/14

Company

Limited Liability Partnership
LLP

Partnership

1

Divorcing Ownership from Management

1.1

A company is a legal entity

separate from its directors and

shareholders. A corporate

structure enables the ownership

of the business in the hands of

the shareholders to be kept

separate from the management

of the firm (the directors). It is

possible to have different

categories of shares with

different rights and also certain

restrictions on the transfer of

shares.

An LLP is a legal entity,

separate from its members.

The ownership and the

management can be kept

separate if desired. The notes

on tax below assume the

members are all individuals.

Group of persons

with ownership and

management likely

to be the same.  The

notes on tax below

assume the partners

are all individuals.

1.2

Shareholders who are also

employees or office holders can

receive two forms of income, (i)

their return on capital invested in

the business, normally paid as

dividends on their shares and (ii)

their remuneration for the

current tasks that they carry out.

However it may be possible to

accumulate profits within the

company at a lower rate of tax

than for a partnership, thus

possibly offering a cheaper

source of capital than for LLP and

partnership structures.  See

section 5 for further details.

Partners or members receive a

share of the profits of the

business although the profit

shares can be based on both

capital invested and work

carried out.

From 6 April 2014 it is

expected that there will be

specific rules for assessing

whether an LLP member is to

be assessed for income tax as an employee of the

partnership

As for LLP, but there

are no new rules

applying from 6 April

2014 for assessing

whether a partner is

an employee.

1.3

Growth in value of the business is

shared between all shareholders

(according to the rights attaching

to the shares) and not necessarily

restricted to a small number of

"funding" partners/members.  It

would be possible for different

classes of shareholder to have

different shares.

1.4

Share ownership allows the

shareholder to participate in and

benefit from future growth in the

value of the business.  There is

the added advantage that on

departure or retirement or when

shares are sold this "growth"

may be crystallised and not

confined to a refund of capital contributed.

Goodwill can be valued on exit to achieve similar result.

As for LLP