Member Article

Limited Companies (LCs) and Limited Liability Partnerships (LLPs) are corporate structures that exist as separate legal entities and afford members limited liability. LCs and LLPs can enter into contracts, hold property, sue and be sued, grant fixed and floating charges and are subject to similar disclosure, accounting and filing requirements. The main distinction between them is that while an LC is treated as a taxable entity an LLP’s members are taxed as individuals. In deciding the most appropriate vehicle for a business venture other factors to consider include: Management structure. Control of an LC is exercised by shareholders and directors however, an LLP does not mirror this management structure. An LLP requires a minimum of two members, but there is no maximum limit. The decision making process within an LLP can be as simple or as complex as members wish. As a relatively new corporate structure many investors will be unfamiliar with LLPs, which may influence their decision to invest. If, however, the business is likely to rely primarily upon its initial members for finance, this may not be a disincentive to choosing an LLP. Raising capital may be easier through a company, because of the flexibility inherent in shares as an investment. A company is relatively inexpensive to set up and its memorandum and articles are matters of public record. In joint venture situations it is usual to have a further shareholders agreement. With an LLP there is no obligation to enter into a partnership agreement although it is recommended. The partnership agreement need not be filed with Companies House and so remains confidential. If the operation of the business constitutes a collective investment scheme, a company may benefit from the exemption for corporate bodies while an LLP will not. Exemption avoids the need to appoint an authorised person under FSMA (Financial Services and Markets Act 2000). Conclusion While both LCs and LLPs provide useful business mechanisms there are also other corporate structures available such as Limited Partnerships and purely contractual relationships. It is important to consider each case according to the particular circumstances before determining the most beneficial structure for the business.

 

Footnotes: Malcolm Gillies is a Partner specialising in corporate finance with commercial law firm Shepherd+ Wedderburn Tel: 44 (0)141 566 7224