Comparing Company/LLP And Partnership For Trading Activities Undertaken By Groups Of Individuals

Company

Limited Liability Partnership

(LLP)

Partnership

1

Divorcing Ownership from

Management

1.1

A company is a legal entity eparate 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 ofshares.

A LLP is a legal entity, separatefrom its members. Theownership and the management can be kept separate if desired

Group of individuals with ownership and management likely to be the same

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 receive a share of the profits of the business although the profit shares can be based on both capital invested and work carried out.

As for LLP.

1.3

Growth in value of the business is shared between all shareholders 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.

2

Limited Liability

2.1

A limited liability company provides a protective barrier between the shareholders and the company's creditors. The Company's liabilities are limited to the extent of its assets and share capital

In the same way as a company, a LLP will act as a barrier between the members and the creditors. The LLP's liabilities are limited to the extent of its assets and the capital contributed by the members.

Unlimited and joint and several Liability

2.2

Limited liability is of no advantage in normal day to day business and with small claims. However, its overall benefit is apparent in the event of a large claim, which could prevent the business from being able to continue. Shareholders will only lose their investment in the company plus any personal guarantees

Position as for company.

Small claims as for LLP. In the event that there is a large claim against the practice, partners in the partnership may Lose some or all of their personal assets or become bankrupt.