Ltd or partnership?

[FionaP]

Can someone please tell me the advantages & disadvantages for a business to go Ltd?

Thank you
Fiona

[jamesconstantine]

Hi

In a nutshell, with a limited company you have no liability for your personal assets in case things go wrong (unless you continue trading when you know that things can only get worse). Taxwise, ltd companies pay tax on their profits at lower rates than partners (appx 19% as ooposed to 22%/40%)and they dont pay any NI on their profits (nil as opposed to 8+1%).

Compare this with partnerships where individual partners are jointly liable for the partnership's debts.

Partnerships nevertheless are better vehicles when it comes to Capital gains tax as individuals enjoy much more generous CGT regime than companies. This becomes more relevant when the business is to be sold and CGT kicks in for capital assets like goodwill, land & buildings etc.

Of course there are always ways to mitigate any problems as long as some good tax planning of one's afairs takes place at the outset as tax errors are difficult to reverse and costly. You should bear in mind that there is no such thing as a "catch-all" tax solution as everybody's personal and business circumstances differ.

And of course there is this new kid on the block, called limited liability partnerships, which to an extent combines the best of both worlds.

I hope this helps.

James Constantine
Chartered Certified Accountant
http://www.taxadviceuk.com
FREE Weekly Tax Tips for the small business owner and the starter up, written in understandable language

[King_Maker]

Limited Liability can prove illusory, if significant bank borrowings are involved, as it is most likely that Directors' Guarantees will be required.

[jamesconstantine]

Agreed, except that it works with other debts other than those personally guaranteed.

James Constantine FCCA
http://www.taxadviceuk.com

[deanshepherd]

I would say the 'limited liability' factor is usually a minor point.

Advantages:
Flexibility of ownership
Control over extraction of funds
Tax planning opportunities
Perceived status

Disadvantages:
Complexity
Burden of administration
Increased professional fees


Dean
dean@mmi-online.co.uk
www.mmi-online.co.uk