Two high level comparisons are provided below. These are the differences:
- Between a Sole Trader (self employed) and a Limited Company
- Between a Partnership and a Limited Liability Partnership (LLP).
Differences between a Sole Trader (self employed) and a Limited Company
| Status | Sole Trader | Limited Company |
|---|---|---|
| Business Activity | You can run your own business under your own name or a trading name and can employ staff | This is a separate legal entity from you as its manager and shareholder which runs up its own debts and can own assets |
| Tax Treatment | You are taxed as an individual | The company will be subject to corporation tax and the directors / shareholders salaries / dividends will be liable to income tax |
| Personal Liability | There is no distinction between your assets and those of the business so If the business fails, your assets are at risk | Liability of the shareholders is limited to the amount they have paid or agreed to pay for their shares |
| Regulation | You are unregulated, although there may be other regulatory controls depending on the nature of the business you are operating | The business must be operated in accordance with the provisions of the Companies Act 2006 |
| Privacy | Public Record Filing requirements: No requirement. | Public Record Filing Requirements: – Memorandum and Articles of Association (companies formed after 1st October 2009, no longer be required to file a Memorandum of Association); – Confirmation statements return detailing its registered office, directors (and secretary, if applicable) and persons with significant control; – Annual accounts within 9 months of its financial year end; and – Certain changes to its constitution such as allotment of shares, certain resolutions, alterations to its Articles of Association, reductions in capital and the appointment / resignation of the directors and secretary and changes to persons with significant control |
| Capital | Any effort to secure finance is likely to require personal guarantees and/or security over your personal assets | It may be possible to secure finance for the business against the assets of the business, although in some cases, lenders may require personal guarantees and/or security over the assets of directors |
The differences between a Partnership and an LLP (Limited Liability Partnership)
| Status | Partnership | Limited Liability Partnership |
|---|---|---|
| Business activity | The nature of the relationship between partners is typically recorded in a partnership agreement which is a private document negotiated by the partners. In the absence of any agreement, the relationship will be governed by the Partnership Act 1890 which in essence treats all partners as equal. | The structure of the relationship between partners is typically recorded in a limited liability partnership agreement which is a private document negotiated by the partners. In the absence of any agreement, the relationship will be governed by the Limited Liability Partnership Act 2000. |
| Tax treatment | The partners will be liable to pay income tax. | The partners will be liable to pay income tax. |
| Personal liability | There is no distinction between the assets of the individual partners and those of the business so if the business fails, your assets are at risk and you will also be liable for the negligence of your fellow partners. | The liability of the partners is limited to the capital contribution each has made to the business. |
| Regulation | The business is unregulated, although there may be other regulatory controls depending on the nature of the business you are operating. | The business is required to comply with certain statutory requirements. |
| Privacy | Public Record Filing requirements: No requirement. | Public Record Filing Requirements: – confirmation statement detailing its registered office and its designated members and members; – Annual accounts within 9 months of its financial year end; and – Details of changes in membership. |
| Capital | It may be possible to secure finance for the business against the assets of the business, although in some cases, lenders may require personal guarantees and/or security over the assets of the partners. | It may be possible to secure finance for the business against the assets of the business, although in some cases, lenders may require personal guarantees and/or security over the assets of the partners. |