What is the difference between an LLP and a limited company?

Same street address, different statute

A private limited company is owned by shareholders and run by directors. Profits belong to the company until distributed. Corporation Tax applies to the company’s profits.

A limited liability partnership has members, not shareholders. For tax it is usually transparent: members are taxed on their profit shares much like partners, while still enjoying limited liability if the LLP is used properly.

Taking money out

Company owners typically mix salary and dividends, with PAYE on the salary. LLP members usually take drawings against profit allocations. Mixed member rules, salaried member tests and disguised remuneration can all recharacterise an LLP member who is in substance an employee.

Investors and employee share schemes are far easier in a company. An LLP can raise capital, but it is a less familiar wrapper for outside equity.

• Companies: CT600, accounts, Confirmation Statement, payroll for directors.
• LLPs: accounts, Confirmation Statement, SA800-style partnership tax, member Self Assessments.
• Both: VAT if registered, PAYE for actual employees.

Which one should you use?

Professional practices that want partnership economics with limited liability often choose an LLP. Founders who want to retain profits, sell shares or look ‘corporate’ to lenders often choose a company. General partnerships with no limited liability are a third option — see tax for general partnerships.

Solaratax prepares accounts for both. We will not recommend an LLP solely because a friend used one. Ask for a structure note that covers tax, liability and how you want to pay yourselves.

Questions we are asked

Does an LLP pay Corporation Tax?

Generally no for a trading UK LLP — members pay Income Tax on their shares. There are exceptions and anti-avoidance rules. Do not assume ‘never’ without a review.

Is an LLP more private?

LLPs still file accounts at Companies House. Privacy is not the reason to choose one.

Can I convert a company to an LLP?

It is a reconstruction, not a form toggle. Tax, stamp and VAT issues arise. Plan it with an accountant and a solicitor.