Briefing Note

Company, Partnership or LLP?

Updated June 2018

Introduction

This Briefing Note sets out the key differences between three common types of business entity used in England and Wales.  This Briefing Note should not be relied upon as legal advice and you should contact us for advice on your specific circumstances.

Limited Company

  • Its members (or shareholders) can take part in management but have no automatic right to do so. The ownership and management of a company can be split.
  • A company has its own legal personality separate from the directors/members. As such, it can own property in its own right and can sue and be sued.
  • Its members enjoy limited liability. So long as they have paid for their shares, they can incur no further liability in their capacity as members.
  • There is no limit on the number of members.
  • It is formed by registration with Companies House.
  • Certain constitutional documentation is necessary, e.g. a Memorandum & Articles of Association must be filed at Companies House. Sometimes there will also be a Shareholders Agreement although the perceived view is that this does not require filing and therefore remains private.
  • Both the company and its members are taxed. The company pays Corporation Tax and the shareholders pay Income Tax on dividends received.

Partnership

  • Its members can take part in management. Within smaller partnerships, members would generally expect to be managers as well.  The larger the partnership, the less likely this is to be the case with management being conducted by a Management Committee and the non-management partners being more akin to members in a company.
  • A partnership has no separate legal personality from its members. Thus it cannot own property in its own name.  For example, a lease of partnership premises is likely to be vested in the names of four partners with them having made a declaration of trust of the lease for the partners generally.
  • Partners have unlimited, joint and several personal liability. A partner can stand to lose every penny of their personal fortune in the event of the partnership becoming insolvent or being sued.
  • There is no upper limit on the number of partners, but you must have a minimum of 2.
  • Unlike companies and LLPs, there are no registration requirements.
  • There is no need to file partnership accounts at Companies House. Therefore, they remain private.
  • Therefore there is no need for a constitutional document. A partnership can exist even in the absence of a Partnership Agreement (although a Partnership Agreement is strongly advisable).
  • Its partners are subject to Income Tax and are taxed individually.

Limited Liability Partnership

  • This has certain traits similar to a company and certain traits similar to a partnership.
  • The members of an LLP can take part in management.
  • An LLP has separate legal personality and therefore can own property and sue and be sued in its own name.
  • The members of an LLP enjoy limited liability (as with a limited company and unlike a partnership).
  • There is no limit on the number of members.
  • Registration with Companies House is required.
  • Therefore a constitutional document is necessary. An LLP Agreement is advisable as it’s unwise to rely on the default provisions in the legislation.
  • There is a requirement to file accounts at Companies House and therefore certain financial information will be public.
  • A member of an LLP can still be responsible for their own acts, e.g. negligence although there is no automatic joint and several liability (as with partnerships) between the members in such a case.

Key Contacts

Quick Contact

  • Any data submitted through this form will be stored and processed in accordance with our privacy policy.

Contact us

To discuss how we can help you email info@gabyhardwicke.co.uk or call one of our offices:

Eastbourne: 01323 435900

Hailsham: 01323 449552

Bexhill: 01424 735000

Hastings: 01424 457500