A limited company and a limited liability partnership both provide limited liability protection to the owners of the business, but these legal structures are completely different in terms of internal structure and the taxation of profits.
Limited companies must be set up with at least one director and one shareholder or guarantor. The same person can fill both positions so a limited company can be set up by one person.
Limited liability partnerships must be set up with at least two partners/members. Each partner must be a different person.
The liability of company owners is limited to the value of their shares or guarantees.
The liability of LLP members is limited to what they invest in the business.
Limited companies can issue shares. This means that portions of the company can be sold in exchange for capital investment.
LLPs do not have a share structure, so equity investment is only available to LLP members, not outside investors.
Limited company pay 20% Corporation Tax on profits.
LLPs do not pay Corporation Tax. The members pay Income Tax and National Insurance on their share of the profits. This is done through Self-Assessment.
Limited company directors can pay themselves tax-efficiently by taking a small salary and larger dividend payments. They will not pay any Income Tax if they keep their salary below the Personal Allowance threshold. Dividends are not liable for Income Tax or National Insurance.
LLPs cannot issue dividends. LLP members have to pay Income Tax and National Insurance on all profit they receive from the business.
Limited companies are suitable for non-profit organisations and charities
LLPs must be set up with the intention of making a profit. They are unsuitable for nonprofit and charitable ventures.