When starting a business, choosing the right legal structure is important. The two popular business options are limited liability partnerships (LLPs) and General Partnerships. While the two share some similarities, they are significantly different. Understanding these differences can help entrepreneurs make the right decision.
What is an LLP?
An LLP (Limited Liability Partnership) is a legal structure for businesses that offer the benefits of a partnership and a limited liability company. In an LLP, each partner has limited liability protection for debts/claims of the peartnership.
What is General Partnership?
In a general partnership, two or more individuals or entities come together to run a business. Each partner contributes to the business and shares the profits, losses, and management responsibilities. The partners are personally responsible for the debts and legal issues, and the business income is taxed on each partner's tax return.
Difference Between General Partnership and Limited Liability Partnership
There are several differences between a General Partnership and a Limited Liability Partnership (LLP):
|Feature||General Partnership||Limited Liability Partnership (LLP)|
|Formation||Formed simply by agreement between partners; no registration required||Must register with Companies House; requires at least 2 designated members|
|Name||No specific requirements; can use partners' names or choose any business name||Must include "limited liability partnership", "LLP", or "LL.P" in registered name|
|Management||Equal rights and duties for all partners to manage the business||Can designate "designated members" with greater management authority|
|Liability||Partners have unlimited personal liability for all debts and obligations||Partners have limited liability; not personally liable for LLP debts|
|Audit Requirements||No statutory audit requirements unless mandated in partnership agreement||LLPs above a certain turnover size must have annual audited accounts|
|Taxation||Pass-through entity; partners pay tax on allocated share of profits||Pass-through entity; partners pay tax on allocated share of profits|
|Transfer of Ownership||Requires consent of partners; partners have first right to ownership interest||Requires consent of partners; transfer must be executed before notary public|
|Dissolution||Automatically dissolves if a partner departs, dies, goes bankrupt, etc.||Can only dissolve by formal application to Companies House; more complex process|
Choose the Best Business Structure
Whether you want to set up an LLP or a general partnership firm depends on the needs and preferences of the partners. While a general partnership is simpler and less expensive, it offers no personal asset protection for the partners. On the other hand, an LLP offers the same simplicity as a general partnership but with limited liability protection for the partners.
Ultimately, whatever you choose depends on factors such as the business size, risk level, and desired legal structure. But if you have any doubts, contact Mishoura. They will connect you to the right advisor to restate your worries.