First of all I was an ordinary person who wanted to open a business with no clue where to start and what to do.
I have a sister (her name is Ellie) and she was willing to help me. We decided that together it will be easier to overcome all the difficulties that we would face going through this process.
We had a brilliant idea for own business – medical office – as we both had a medical degree. I am a GP (general practitioner) and my sister Ellie is a dentist.
So we searched the internet and found a website www.zdkformations.co.uk, through which we decided to open own company. We picked a name “Glorious Whites” as we decided that our office will provide dental services. We already had a written business plan and we had an idea where to rent an office and what equipment we had to buy. Even the application for the loan was approved by my bank and my sisters bank too. So we were ready to go!
We contacted ZDK Formations. It was a very important step in forming a company, where we had to decide which form of company we want. We had two options LLP or Limited Company. And we were so confused because Ellie thought Limited Liability Partnership was a good form of company as soon as we are partners. I thought that we need to stay with Limited Liability Company form.
ZDK formations customer service specialist gave us a very good explanation of benefits and disadvantages of both forms of business. At the end of this article you can find a table comparing those two forms of business.
So “limited liability partnership” (LLP) is a partnership in which some or all partners have limited liabilities. It therefore exhibits elements of partnerships and corporations. In LLP, one partner is not responsible or liable for another partner’s misconduct or negligence.
Obviously a LLP needs to have at least two or more designated members or partners. A partner can be a person or a company. We must have at least one general partner and one limited partner. We can’t be a general and a limited partner at the same time. Ok this is very easy. Each member pays taxes on their share of the profits. But a member is not responsible for any losses or debts that LLP cannot pay. Also very straightforward. Limited partners invest money to the business and don’t manage it and can’t remove the original investment. Also they are liable only for the debts up to the sum of their contribution. General partner is liable for all company’s debts, controls and manages the business. This might be a problem for us as we both want to have the equal rights in the company.
We don’t need to register a name but we must include all the partners names (and business names if we have one, but we don’t) on the official paperwork like invoices or business letters.
About taxation: the good side that LLP has no further tax on distributed profits.
If we want to open LLP and suddenly we will have loss – we can set all losses against other taxable income but with restrictions on the amount allowed to be set off. Ok not a very good result. Also if one of the partners (me or Ellie) decided to leave the company, we have to dissolve it. Also not a very good point. We wish to keep the company open even if someone decides to leave. Plus we have to disclose our records to public. That was all about LLP.
Now let’s talk about Limited Companies. A limited company is a form of company, members of which are not responsible for any company’s losses or debts. This form of company usually has a format of corporation combined with a sole proprietorship.
The company and people who run it are legally separated. Good thing that we have to risk only our own investments in the business. And our personal money and houses and other assets will be protected in case of lawsuit, losses, unpaid debts or bankruptcy. We can keep all the money after we pay taxes.
Limited companies offer the opportunity to be flexible of changing ratios on income or capital profit sharing.
So after reviewing all things we came to the conclusion that we can open ether of these two structures, but to open a limited company will be more appropriate for our type of business, because it is the most easy and straight forward form of company even with some disadvantages compared to LLP.
|One general and one limited partner||One person can run the business|
|General partner controls and manages the business and reliable for all losses and debts. Limited partner is responsible only for the debts equivalent of the original contribution||Director of the business is not liable for any losses or debts, other than his investment to the company. This does not mean that he/she can’t be held liable for criminal behavior or if they don’t follow certain rules about business management|
|If a partner is legally liable for a mistake, the other partners cannot be held jointly liable||All members are liable for the mistakes of other partners|
|The partners pay taxes only on the earnings passed to them though the business||The owners pay taxes only on the earnings passed to them through the business|
|If one of the partners wants to leave, the company has to be dissolved||No need in dissolving a company if a partner decides to leave|
Owner of “Glorious Whites”