Limited Company versus Partnership

Limited Company v Partnership

Should my business become a limited company? Should I incorporate my business?

Incorporation is the act of setting up a limited company which then becomes a separate legal entity from yourself.

The Decision - Sole Trader / Partnership v Limited Company 

The decision is based upon a variety of criteria, but the key elements normally come down to the following : 

What is the personal liability against losses or actions against your business?

• Sole Trader / Partnership - No capping of exposure to third party actions.  Your personal liability is unlimited unless you elect for a special limited liability partnership
• Limited Company - Limited liability cover, effectively limiting the liability to the value of your business, although there are more frequent incidences now of: Requirements for personal guarantees and more frequent personal actions against directors

What information has to be sent each year to HM Revenue and Customs? 

• Sole Trader / Partnership - Filing obligations under Self-Assessment on a personal basis
• Limited Company - More stringent statutory filing requirements and recording, in addition to directors own Self Assessment returns

What access does the public have to my accounts?

• Sole Trader / Partnership - Self Assessment accounts are  not available to the public
• Limited Company - Reported accounts are available for public inspection.

What is the income tax position?

• Sole Trader / Partnership -  Personal tax based upon profits earned in accounting period
• Limited Company - Personal tax based upon profits "drawn" from business.  Corporate tax on profits retained.

What is the public perception?

• Sole Trader / Partnership - Unincorporated business perceived to be smaller entities
• Limited Company - Perception of "larger entity" of limited company status 

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