What is the difference between an LLP and a Ltd company? Both structures provide limited liability and are registered at Companies House, but they organise ownership, management and profits differently.
The right choice usually depends on how many people are involved, whether the business needs shares and how the owners want profits and decisions to be handled.
What is an LLP?
A limited liability partnership is a separate legal entity run by its members. It must have at least two designated members and is commonly used where two or more people want the flexibility of a partnership with limited liability.
An LLP does not have directors, shareholders or share capital. The members normally agree how it will be run and how profits will be shared in an LLP agreement.
What is a limited company?
A private limited company is owned by shareholders and managed by directors. It can be formed with one person acting as both director and shareholder, and ownership is represented through shares.
A company can use a straightforward single-share-class structure or, where appropriate, multiple share classes with different rights.
LLP vs Ltd: the main differences
| LLP | Limited company | |
|---|---|---|
| Owners | Members | Shareholders |
| Management | Members, including at least two designated members | Directors |
| Minimum people | Two designated members | One director and one shareholder, who can be the same person |
| Ownership | No shares; arrangements are normally set out in an LLP agreement | Ownership is divided into shares |
| Profit and tax | Members are normally taxed on their share of the profits | The company pays Corporation Tax; directors and shareholders may also have personal tax |
| Companies House filings | Annual accounts, confirmation statement and changes to members or registered details | Annual accounts, confirmation statement and changes to directors, shareholders or registered details |
When might an LLP be suitable?
An LLP may suit an established professional or commercial partnership where at least two people will be actively involved and want flexibility over profit sharing and management.
Because the members’ rights and responsibilities are usually set out in an LLP agreement, it is sensible to have that agreement properly prepared for the business.
When might a limited company be suitable?
A limited company may be the more familiar option where there is one founder, where ownership needs to be divided into shares, or where the business may introduce shareholders or investment later.
Can an LLP be converted into a limited company?
There is no simple Companies House form that directly converts an LLP into a limited company. The usual approach is to form a new company and arrange for the LLP’s business, assets and contracts to be transferred. Legal and tax advice should be taken before doing this.
Form an LLP or limited company
The Company Shop can handle the Companies House formation for either structure. Compare our LLP formation service and limited company formation service, or contact our Belfast team to discuss the formation requirements.