Limited liability partnership is a legally safer business structure to set up compared to that of a Sole Trader and a normal Partnership. Whereas with the two just mentioned you are offered no protection in Liability which means that you personal assets could be as risk if you get into financial difficulties.
A limited liability partnership itself and not the members are responsible for any liabilities and debts that are acquired through the business, unless a partner has guaranteed the loan or financial agreement themselves. You would need to seek proper legal advice from an accountant and solicitor as the set up of a limited liability partnership is more complicated than that of a normal partnership.
A deed of partnership is recommended (drawn up by a solicitor) this is a legal document drawn up by the partners, who are setting up the business outlining such details as how the business will be run including duties, roles and responsibilities of the partners themselves.
If no deed is drawn up then the business is governed by the terms of the Limited Partnership Act 2000 which may not offer solutions to the many different problems that can arise. Each member registers as self employed and is liable for their own NIC (National Insurance Contributions) and any profits that are made are shared amongst the partners evenly and are subject to the usual income tax. If the Businesses Annual turnover is more than £79.000 then the business has to register for V.A.T value added tax
Value added tax is a tax you must charge your customers when your turnover reaches £79.000 (correct as of 2013) for your 12 month trading period. This means that whenever you buy or sell anything connected with your limited liability partnership business you will have to charge VAT on your sales.
You must also keep records of your incoming and out goings for VAT as this is a separate tax. You would then need to work out what you owe and send a payment to HMRC Her Majesty Revenue Customs. I used to do the VAT for my franchise business, it was not actually that difficult to do, but if you buy and sell a wide range of products and services. I would advise you to get a good accountant.
Keeping track of everything can get complicated and you don't want to make errors with your payments especially having to pay more than you should visit the HMRC website for more information on V.A.T
Unlike a Sole trader, partnership or limited liability partnership a limited company exist in it's own right.The finances of the company are kept totally separate from the owners of the company. To set up a Ltd company it has to be registered with Companies House and must have a Director and a Company Secretary.
This can be set up through various agents or you can opt to do this yourself, but it`s easier to pay an agent or an accountant to do this for you. This way certain legal requirements that have to be satisfied will be explained better to you. Shareholders can be the director, secretary or an individual who may or may not invest into the company.
Shares in the company cannot be sold openly to the public and shareholders are NOT liable for the company’s debts and liabilities unless they have given personal guarantees e.g. in the form of a loan. Shareholders are also entitled to a share of any profits that the company makes in the form of dividends. This is also a very popular choice as it protects you personal assets like homes, cars etc.
Directors, secretary and everyone else are employees of the company and are subject to the usual Income tax and national Insurance Contributions. Unlike the limited liability partnerships, Ltd companies are also charged corporation tax which is a tax on the company’s profits and the amount is determined by how much profit your company makes. This can range from 0% up to 30% but seek professional advice to be certain. A LTD company must also make an annual return to HMRC each year.
Warning! If accounts are not filled on time you will be subject to Financial Penalties
As you have read there is a lot of paperwork and legalities that need to be processed. You will need to find a good honest accountant to do the paperwork for you, as it can work out quite daunting doing it yourself.
I would honestly suggest that if you don't need an Ltd company or limited liability partnership avoid them and keep it simple until you can afford an accountant or your business starts thriving.
I hope you have found this information helpful, if you need further help with choosing the best business structure for you, I’d advise that you to talk to an accountant or contact me for help to do with another issue .