UK LLP vs. LTD: Understanding Their Similarities and Differences

Limited Liability Partnerships (LLPs) stand as a fusion between private limited companies and traditional partnerships, aiming to blend the benefits of limited liability with the flexibility and confidentiality inherent in partnerships. LLPs bear closer resemblance to limited companies than conventional partnerships, sharing various core features:

Incorporation and Setup

Both LLPs and limited companies are registered entities at Companies House. While a limited company comprises directors and shareholders, an LLP is composed solely of members. Their foundational documents differ: a limited company operates with Articles of Association and any corresponding Shareholders’ Agreement, whereas an LLP hinges on a Members’ Agreement.

Separate Legal Identity

Both entities possess distinct legal personalities, enabling them to engage in contracts, own assets, and litigate under their names. The LLP’s contractual engagements by its members mirror how directors bind a limited company.

Limited Liability

Members of both an LLP and a limited company enjoy limited liability, shielding them from most of the entity’s liabilities. In a limited company, a member’s liability is restricted to any outstanding shares held, while an LLP member’s liability aligns with their agreed capital contribution stated in the Members’ Agreement.

Filing Obligations

Annual filing obligations for accounts and a confirmation statement are mandatory for both LLPs and limited companies at Companies House. Additionally, they are required to maintain a register of significant control individuals, notifying Companies House of any relevant changes within a specified timeframe.

Security Measures

Both LLPs and limited companies have the authority to grant fixed and floating securities against their assets for security purposes.

LLP vs. LTD: Key Differences

While both structures share many similarities, distinct differences can impact business considerations:

Organizational Flexibility

LLP members often enjoy more flexibility in structuring the entity’s affairs and governance compared to limited companies. The latter must adhere to stricter regulations outlined in the Companies Act 2006, limiting their organizational maneuverability.

Confidentiality

Unlike limited companies with publicly accessible Articles of Association, an LLP’s Members’ Agreement remains confidential, covering pivotal aspects such as profit-sharing, management, membership alterations, and dispute resolutions.

Tax Treatment

For tax purposes, an LLP’s business is treated as a partnership, rendering the entity tax-transparent, where profits and gains are taxed at the individual member level. In contrast, limited companies are taxed separately, paying corporation tax on profits, with shareholders liable for dividend and income tax.

Investment and Sale

Limited companies often attract more investors due to their ease of share acquisition without necessitating directorship. In contrast, investing in an LLP requires membership, and transferring LLP ownership differs from traditional company shares.

Share Capital

LLPs operate without share capital, diverging from limited companies, which are bound by capital maintenance requirements.

Choosing between LLPs and limited companies hinges on the business’s structure, operations, and objectives. Consulting legal and tax professionals before deciding on the appropriate structure is imperative, considering the nuances of each entity type.

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