Limited liability: Commercial differences

One person can establish a limited company, but there must be at least two for an LLP.

That said, there’s nothing to prevent you setting up your own (non-active) company and for the LLP members to simply be you and your company.

If you plan to build up your business for sale – or you’re likely to require third party investment – you’ll probably want to run your business through a limited company as you can sell shares in a company.

However, there’s no such concept in an LLP. Some people will loosely talk as though you can buy and sell shares in an LLP, but – trust us – it’s not that easy.

The law imposes restrictions on limited companies as regards what is called ‘capital maintenance’. This often causes problems when the owner tries to pay dividends when there are insufficient accumulated profits. There are no equivalent rules for LLPs.

Companies, but not LLPs, are required to record details and maintain minutes of Directors’ meetings, shareholder meetings, annual and extraordinary meetings. There are some annual reporting requirements and a specified format for LLP accounts but this is not much different to the rules for a limited company.

Big limited companies and LLPs are required to have a formal audit but typically only if their turnover is greater than £5.6 million.

In certain restricted circumstances the members of an LLP can be required to repay drawings and profits back to the LLP after it become insolvent.

Directors of failed companies can be banned from holding subsequent directorships.

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Clients Case Studies

Learn about the experiences that just a handful of our clients have had in working with us, and how we might be able to work with you.

UKCharge Ltd – Andrew Werner
UKCharge Ltd – Andrew Werner
Kink London – Kethan Heyer
Kink London – Kethan Heyer
3rd Home – Giles Adams
3rd Home – Giles Adams
Hearth Glow – Richard Gunter
Hearth Glow – Richard Gunter