Company Formation

WHAT IS AN LTD?

The Private Limited Company is the most common legal form used by the vast majority of businesses, ranging from a business with a single shareholder director to large companies which have attracted large investments of private equity capital. It offers limited liability to its shareholders but that places certain restrictions on its ownership. The major ownership restrictions are:

1. shareholders cannot sell or transfer their shares without offering them first to the other shareholders for purchase;
2. shareholders cannot offer their shares or debentures to the general public over a stock exchange;
3. the number of shareholders cannot exceed a fixed figure (commonly 50).

WHAT IS AN LLP?

A simple definition of a Limited Liability Partnership, or LLP as the acronym expresses, is "A legal business entity partnership whereby the LLP is responsible for the debts of the business and not the partners". In simple words is a legal partnership providing limited liability to the partners in the business. The liability is limited to the amount each partner has invested in the business so that their personal assets are safe if the business was to be sued and insurance could not cover the losses. Each member takes an equal share of the profits, unless the members’ agreement specifies otherwise.

• Who can incorporate an LLP?

Every Limited Liability Partnership must have at least two, formally appointed, designated members at all times. If there are fewer than two designated members then every member is deemed to be a designated member. The Limited Liability Partnership may have decided that all members will be designated members or only part of them. LLP’s are not applicable for all activities, for example, non-profit making activities.

• Benefits of an LLP

• Suitable for new and existing partnerships wishing to obtain limited liability status
• Aimed particularly at professional partnerships such as accountancy and solicitors firms
• Maintains tax status of a partnership
• The members have limited liability
• Incorporation is usually within 4 days
• Suitable for most commercial business activities

• Key Features of an LLP

• Is a corporate body and a separate legal entity distinct from its members
• It can own and hold property, employ people and enter into contractual obligations
• Debts incurred are the debts of the LLP
• Has unlimited capacity, which means that third parties need not be concerned about any restrictions on its activities
• Has members, but no directors or shareholders. The members have limited liability
• No share capital and not subject to company law rules governing the maintenance of capital
• No memorandum or articles of association

 

WHAT IS THE DIFFERENCE BETWEEN AN LLP AND A LIMITED COMPANY?

The main difference is that a Limited Liability Partnership has the organisational flexibility of a partnership and is taxed as a partnership. In other respects it is very similar to a company. The Limited Liability Partnership will be of most interest to businesses where the members wish to have:

• limited liability but at the same time wish to be able to participate in the membership of the firm;
• where the less formal partnership structure is preferred to the more formal company structure (with transferable shares).

The Limited Liability Partnership structure is particularly appropriate for professional practices that wish to limit members' liability.

Main differences:

	Incorporation of Llp	Incorporation of Ldt
Minimum number of people:	Minimum 2 partners required for the formation of the Llp. There is no limit to the maximum number of Partners. Two of the partners in an LLP must be designated members who meet all the statutory requirements after you register an LLP	The minimum number of shareholders required for a Ltd is 2 and there can be up to 50 shareholders, in case of a private limited company.
Documents required:	Deed of Partnership agreement (legal binding between the partners regarding their responsibilities and rights of each individual) is a private document so is not registered at the Companies House	Memorandum of article of association
Taxation:	The members of an LLP pay Income Tax as self-employed persons, so there is no employers' NI (National Insurance) to pay. On the other hand, all the profits of the company are regarded as the members' income and are subject to Income Tax	In a traditional LTD the Directors are treated as employees of their own company. This means that their salary is subject to personal Income Tax and National Insurance and employers' NI contributions. Profits left in the company are subject to the Corporation Tax rate.

 

WHAT IS A TRUST?

A corporation formed for the purpose of managing property set aside, in order to be used for the benefit of individuals or organizations. They are essentially legal devices for holding assets so as to separate legal ownership from economic interest. A trust holds assets on behalf of an individual or another organisation and governs how they have to be used. A trust is run by a small group of people called trustees who are legally responsible for the administration of the trust and personally liable for any debts or claims against it that cannot be met out of the trust’s own resources. Trusts make their own set of rules , enshrined in a trust deed, which sets the trust’s objectives and may be used to ensure that assets and profits are used for a particular purpose. Trusts do not typically raise finance; they simply manage assets and do not distribute profits. Trusts are often used in conjunction with unincorporated associations, which cannot themselves own property.