Business

Is a Limited Liability Company Right for You?

This page is here to lay out the facts about Limited Liability Companies, explaining what they are, and presenting the questions to ask to decide if it’s the best structure for your business. Nothing on this page or website is intended to be legal advice, and we encourage you to seek appropriate professional advice if you are in doubt about the best structure for your business.

What is a limited liability company?

A limited liability company combines the characteristics of old partnerships and limited liability companies. Like limited liability companies, they offer limited liability protection to shareholders. Like traditional associations, they offer a flexible and fiscal structure and governance arrangements.

Limited Liability Partnerships (LLPs) are very recent, introduced on April 6, 2001. LLPs were designed for traditional professional societies, such as lawyers, accountants, or architects, whose professional bodies had not allowed them to previously incorporated as limited liability companies.

Benefits of Limited Liability Companies

o Unlike a conventional partnership, partners (also known as members) can limit their personal liability for things like employee liability.

o Limited liability companies allow more flexibility with voting rights and rights to the assets of the company when the company ends. This can be especially helpful when new or retiring members are allowed.

o Tax treatment can be advantageous over companies

How to form a limited liability company

An LLP must have the appropriate forms filed with the Companies Registry to be formed, in the same way as a limited partnership. The Registry of Companies issues a Certificate of Incorporation upon receipt of these forms.

As a caveat, Companies House will check the proposed name prior to incorporation to ensure that the name is not being used by a company or another LLP. We strongly recommend that you return your completed paperwork as soon as possible because Companies House is a first-come, first-served basis. A delay may mean that you will lose your name to a rival.

The company deed

We strongly recommend that you have an agreement to set out the duties, rights and responsibilities of each partner and how the business will be run on a day-to-day basis. The legislation has few provisions governing these relationships.

We provide a model deed of company that:

o It acts as a formal agreement that establishes the rights and obligations of the partners during the existence of the partnership.

o Establishes the conditions when the company is dissolved

o Gives details of profit sharing (with a presumption of equitable profit sharing)

o Allows monthly salary payments to prepay profit sharing.

o Allows you to establish decision-making procedures

o Put vacation arrangements in place

o Establishes rules for partners with outside interests.

How is a Limited Liability Company taxed?

Limited Liability Companies are taxed, for the most part, in the same way as traditional companies. The income of a partnership is “reviewed” by the tax collector and treated as the personal income of the partners, with each partner being assessed on their share of the LLP’s income or earnings. There are some differences from the traditional partnership: loss relief is not unlimited for the limited liability partner.

When a traditional partnership converts to limited liability status, a stamp duty exemption is generally granted on the transfer of ownership of the partnership as long as all partners in the existing partnership transfer to the LLP with identical interests.

How is a limited liability company managed?

You should ensure that any agreement addresses how the LLP is managed and what the duties and responsibilities of each of the members are.

LLP partners are free to decide their internal relationships, in the same way as a conventional partnership. Because the Limited Liability Company is a separate legal entity, it can own property and enter into contracts. Like a company, an LLP continues as before even when its members change.

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