Ingrid and Lola wish to start a business in which they share the risk and profit equally; the legal structure that is reflective of that. The options they have to choose from which are best suited would be either a Partnership, Private Limited company (Ltd), or Limited Liability Partnership (Llp). A partnership involves two or more individuals who share the duties of management and profits. All liability for any debts or loss incurred would lie equally on Ingrid & Lola – profits would be shared equally alike. Partnerships are easy to set up, and entering into one would allow for full control in the business to remain with Ingrid and Lola. Despite these benefits, partnerships pay more in tax1 and don’t carry as much weight in the market in comparison to Ltd or Llp; due to this, a partnership may not be the best option for Ingrid and Lola.
Limited liability partnerships are a newer form of business structure. These offer the same level of limited liability that an Ltd would with the same flexibility a partnership would, so long as the minimum requirement of two members are met who would be responsible for filing annual accounts. Although Llp’s limit your liability to that which you put into the company, they do not offer the same tax benefits as an Ltd would; profit received would be taxed as income and each partner would have to register as self-employed. A private limited company in one where the liability limited.
Like an LLP, a limited company requires registration at Companies House. Registration of a company not only provides credibility on the market, but also in terms of loan procurement. Ingrid and Lola would only be liable or the amount their person invested into the company; this would highly limit their financial risk in comparison to a partnership. A company is seen to be a separate legal person/entity from the members of the company.
Ingrid and Lola’s personal assets – such as the money in their respective bank accounts – would not be considered part of the company’s assets. Should the company be sued, their personal assets would not be accessible; the company’s assets alone would be used. Although limited companies have more accounts that require being filed such as an annual return to Companies House, this is perhaps the best option for Ingrid and Lola; they would be able to run the business how they so please as directors of the company, and split the profit/risk as equal shareholders.