Limited company vs LLP: ownership, tax and finance compared

The main difference between a limited company and a limited liability partnership (LLP) is how profits are taxed and how the business is owned and run. A limited company is owned by shareholders, run by directors and pays corporation tax on its profits. An LLP is owned and run by its members, is not taxed itself, and each member pays income tax on their share of the profits. Both give their owners limited liability.

This guide is for founders, partners and professional firms choosing between the two. It explains how an LLP works, compares both structures side by side and shows how each affects access to business finance. Smart Funding Solutions is a commercial finance broker that arranges funding for both; this is general information, so take advice from an accountant or solicitor before choosing. If you are still deciding whether to incorporate at all, see sole trader vs limited company.

01Limited company vs LLP at a glance

	Limited company	LLP
Owners	Shareholders (at least one)	Members (at least two designated members)
Management	Directors	Members, as set out in the LLP agreement
Legal status	Separate legal entity	Separate legal entity
Liability	Limited to investment in shares	Limited to agreed contribution
Tax on profits	Corporation tax paid by the company	Income tax and National Insurance paid by each member
Taking profits	Salary and dividends	Profit share as agreed between members
Raising equity	Can issue shares to investors	Cannot issue shares; new members must join
Public filings	Accounts and confirmation statement	Accounts and confirmation statement
Typical users	Most trading businesses	Professional firms such as solicitors, accountants and architects

02How an LLP works

A limited liability partnership is a UK business structure that combines the flexibility of a partnership with the limited liability of a company. It is registered at Companies House and can own property, sign contracts, employ staff, borrow and be sued in its own name.

• Members: the owners of the LLP. There must be at least two, and they can be individuals or companies.
• Designated members: at least two members must be designated. They carry extra legal responsibilities, such as filing accounts and the confirmation statement.
• LLP agreement: sets out profit shares, capital contributions, decision-making and what happens when members join or leave.
• No directors or shareholders: members share profits according to the agreement rather than through dividends, and members can join and leave without the LLP ceasing to exist.

LLPs are common in professional services, including law firms, accountancy practices, architects, surveyors and consultancies, and are also used for some property and investment ventures.

03Limited companies: pros and cons

Advantages of a limited company

• Limited liability for shareholders
• Profits retained in the company are taxed at corporation tax rates, which can suit reinvestment
• Easy to bring in investors by issuing shares
• Widely recognised by customers, suppliers and lenders

Disadvantages of a limited company

• Profits can be taxed twice: corporation tax on the company, then personal tax on dividends
• Directors' duties and more formal governance
• Accounts and officer details are public

For how lenders assess companies, see our page on limited company business loans.

A limited liability partnership is a UK business structure that combines the flexibility of a partnership with the limited liability of a company.

04LLPs: pros and cons

Advantages of an LLP

• Limited liability for members
• Tax transparent: profits are taxed once, in the members' hands
• Flexible profit-sharing and management, set by the members' agreement
• Familiar structure for professional partnerships

Disadvantages of an LLP

• All profits are taxed on members each year, whether or not they are drawn
• Cannot raise equity by issuing shares
• Needs at least two members
• Accounts and member details are public
• Limited liability does not cover personal guarantees or a member's own negligence

05Setting up each structure

Setting up a limited company

Register with Companies House with a company name, registered office, at least one director and shareholder, details of persons with significant control, a share structure and articles of association. Then register for corporation tax. See GOV.UK: set up a limited company.

Setting up an LLP

Register with Companies House with a name ending in "LLP", a registered office and at least two designated members. An LLP agreement is not a legal requirement, but without one default rules apply, so a written agreement covering profit shares, decision-making and exits is strongly advisable. See GOV.UK: set up a business partnership.

06Tax differences in more detail

A limited company pays corporation tax on its profits. Directors and shareholders then pay income tax on salaries and dividends. Rates change, so check GOV.UK corporation tax rates for current figures.

An LLP pays no tax itself. It files a partnership tax return each year allocating profits, and each member is usually taxed as self-employed on their profit share through self-assessment, including National Insurance. HMRC's salaried member rules can treat some members as employees for tax purposes. For higher earners who reinvest heavily, a company can sometimes be more efficient; for firms that distribute most profits, an LLP can be simpler. Your accountant can model both.

07Which structure is better for getting finance?

Both can borrow, and lenders assess each on accounts, bank statements, credit history and affordability. The practical differences are:

• Choice of lender: more lenders offer products designed for limited companies, though many also lend to LLPs.
• Guarantees: lenders commonly ask directors of a company, or members of an LLP, for personal guarantees.
• Professional firms: LLPs in law, accountancy and similar professions can access specialist lending, such as partner capital loans for new members buying in, WIP and invoice funding for long billing cycles, and practice acquisitions. See professional practice finance.
• Tax bills: LLP members pay their own self-assessment bills, which some firms help spread using income tax loans; companies more often need VAT or corporation tax funding.
• Equity: only companies can raise investment by issuing shares.

08Can you change structure later?

Yes, but there is no simple conversion. Moving between a company and an LLP normally means forming the new entity and transferring the business, assets and contracts to it, which can have tax consequences. Take professional advice before restructuring.