LLP (LP) vs LTD: What’s Your Choice? Strengths and Limitations of Each Business Type

When it comes to optimizing tax obligations, registering a company in the United Kingdom can be highly advantageous. Nevertheless, it is of utmost importance to carefully select the appropriate organizational and legal framework before commencing business operations. In the realm of British commercial law, Limited Liability Partnerships (LLPs) and Limited Liability Companies (LTDs) are among the widely favored options. It is imperative you evaluate and ascertain which of these business structures better suits your distinct requirements and objectives.

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Let’s kick off by gaining a clear understanding of the implications and significance associated with each of these business organizational and legal forms.

What do the terms Limited Partnership (LP) and Limited Liability Partnership (LLP) refer to?

Speaking of the United Kingdom, there are 2 categories of limited liability partnerships: LPs and LLPs. These designations differ in the extent of liability the partners bear.

A Limited Partnership, a.k.a. LP, is a partnership with 2 distinct partner roles:

  1. General partner(s) who assume full responsibility for the business’s liabilities.
  2. Limited partner(s) who enjoy limited liability, albeit without the privilege of voting rights.

In the United Kingdom, Limited Partnership (LP) is not considered an independent legal entity, except in Scotland. To safeguard the ultimate beneficiary from personal liability for the debts of the business, it is common to designate a Limited Liability Company (LLC) as the general partner. LPs are typically established for small-scale business endeavors or as components of investment fund structures.

Conversely, a Limited Liability Partnership (LLP) is a partnership arrangement where all partners benefit from limited liability and have the right to participate in the management of the business. In the UK, LLPs are frequently established to offer professional services such as legal, accounting, and financial services. LLPs hold the status of legal entities.

What does LTD stand for?

In English, LTD stands for Limited or Private Limited Company (PLC). It represents a privately held company with limited liability. Such businesses divide their capital into shares. LTD shareholders in the UK are not personally liable for the company’s debts.

Ownership of shares in an LTD is restricted to a select group of members. Such shares are never publicly traded on stock exchanges. To acquire a share of the company’s capital, the consent of all shareholders and directors is required.

In addition to the United Kingdom, private LTD companies may be established in various other jurisdictions, including Australia, New Zealand, India, the Marshall Islands, Antigua and Barbuda, and St. Vincent and the Grenadines.

The equivalent legal structure to LTD in the U.S. is the Limited Liability Company (LLC). Shareholder companies in the U.S. are commonly referred to as corporations, hence an LLC may have the Corp. or Inc. abbreviation in its name.

Advantages of each business entity: a concise overview

Opting for a Limited Liability Partnership (LLP) over a Limited Liability Company (LTD) offers the benefits of a streamlined and cost-efficient setup procedure when it comes to company registration. Conversely, LTD companies come with a more adaptable tax framework when compared to partnerships.

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Partnerships: their benefits and drawbacks

Here’s how we can summarize the advantages of partnerships:

  • Ease of establishment: Partnerships can be formed without the need for complex registration procedures. A simple partnership agreement, whether verbal or written, is sufficient. However, formal registration is an option if desired.
  • Collaborative synergy: Partnerships allow multiple individual entrepreneurs to come together, pooling their resources and expertise to pursue a common goal. This collaborative approach promotes efficiency and shared decision-making.
  • Flexibility in structure: Partnerships offer flexibility in terms of modifying the partnership structure or expanding its operations. Unlike other business entities, partnerships make these changes without extensive legal formalities. Agreements among partners, whether oral or written, provide the necessary flexibility.
  • Easy dissolution: The dissolution of a partnership is relatively straightforward. In certain cases, the withdrawal of a single partner leads to the automatic termination of the partnership, without the need for formal applications or complex procedures.
  • Flow-through taxation: Partnerships benefit from flow-through taxation, wherein the partnership’s profits are not subject to separate taxation. Instead, each partner reports their share of the partnership’s income on individual tax returns. This avoids double taxation and simplifies the tax process.
  • Asset extraction simplicity: Extracting highly liquid assets from a partnership is uncomplicated, as partnerships are not considered separate legal entities from their owners. This allows for the easy transfer of assets and facilitates liquidity management within the business.
  • Quick infusion of personal funds: Partnerships offer a swift mechanism for injecting personal funds when additional working capital is required. Partners are free to contribute funds, and repayments may be based on the partnership’s future earnings, without the need for detailed asset transfers or complex financial arrangements.

Below, the disadvantages associated with LLPs and LPs are listed:

  • Non-legal entity status: LPs do not possess the status of a separate legal entity. In the event of a partner’s death or withdrawal, the partnership ceases to exist immediately.
  • Differences in opinions and conflicts: Serious disagreements and unresolved conflicts among partners may lead to the dissolution of the partnership, without a willingness to reach a compromise.
  • Limited number of partners: LLPs and LPs have a maximum limit of 20 partners. The above limitation restricts the infusion of capital into the business. Consequently, most partnerships are small-scale enterprises.
  • Complex recovery of initial investments: Exiting a partnership and recovering initial investments is oftentimes challenging, as all partners shall unanimously agree on the choice of a new partner.

From the article linked below, you will learn how you can open a corporate multi-currency account in the UK payment system.

Benefits and burdens of limited liability companies 

Take a look at the benefits a Private Limited Company (LTD) comes with:

  • Flexible and streamlined management: Private Limited Companies offer a higher degree of flexibility and efficiency in their management processes compared to publicly traded corporations. They are not burdened by the requirement of obtaining a commencement certificate, filing extensive prospectuses, or conducting annual meetings.
  • Limited liability for shareholders: Shareholders of an LTD company enjoy the advantage of limited liability, meaning their assets are safeguarded and their liability is restricted to the capital they have invested in the company’s shares.
  • Perpetual existence: LTD companies have the advantage of continuous existence, regardless of changes in the ownership structure. Their business operations will persist even if a shareholder decides to leave or in the unfortunate event of a shareholder’s passing.
  • Easy access to venture capital and investors: Private Limited Companies have a favorable position when it comes to attracting venture capital funding and securing investments. Their legal structure and established credibility make them more appealing to potential investors.
  • Enhanced reputation and credibility: LTD companies enjoy a higher level of trust and credibility among suppliers, customers, and other business stakeholders. The established corporate framework and limited liability structure contribute to their solid reputation.

As with anything in this world, LTD companies are not without their flaws:

  • Limited share transferability: The transfer or sale of shares among shareholders or to the public is restricted. It requires the unanimous consent of all shareholders.
  • Mandatory registration and tax obligations: LTD companies are required to register with the government and comply with tax reporting requirements. They may also be subject to compulsory audits.
  • Double taxation on profits and dividends: LTD companies may face double taxation, with profits and dividends taxed separately.
  • Additional responsibilities for directors: Directors of an LTD company have additional duties, including contributions to the national insurance system.

Key characteristics that set LPs apart from LTDs

Limited Partnerships (LPs) and Limited Liability Companies (LTDs) exhibit unique characteristics that differentiate them from one another:

Differentiating featuresLPsLTDs
LegislationLimited Liability Partnership Act as of 2000   

Limited Liability Partnerships Regulations as of 2001
Companies Act as of 2006, as amended
Taxation Pass-through taxation:
these are partners who pay income tax, while the partnership itself is not a taxpayer.
Double taxation:
profit tax
dividend tax.
Member and manager requirements2 to 20 partners:
no director
no secretary.
1 to 50 members:
at least 1 director
at least 1 secretary.
Issue of sharesNoYes
Member liabilityIn a Limited Partnership (LP), the general partner assumes full liability, whereas the other partners have limited liability.The liability of all shareholders is limited.

Final thoughts

Deciding which is better, a limited liability company or a limited partnership is not a simple task. Both business structures come with their unique benefits and drawbacks. To make a well-informed choice between an LTD company and LP or LLP partnerships, go ahead and consult International Wealth experts. Don’t hesitate to contact us at for professional advice.

What kinds of businesses are suitable for LLPs and LTDs?

LLPs are often established to provide professional services in fields like law, accounting, or finance. For example, lawyers with expertise in various legal domains might come together to form an LLP.

On the other hand, LTDs are typically registered to launch small or medium-sized businesses in a range of industries, including services, trade, food production, design studios, medical centers, and others.

Can I establish an LTD or an LP on my own?

Under UK legislation, you are allowed to register an LTD with a single shareholder who is also the owner. However, the formation of a partnership requires a minimum of 2 members. For example, an LP shall consist of at least 1 general partner and 1 limited partner.

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