Partnership (E&W) (other than a limited partnership)

LLP

Ltd company (a plc is often more rigid)

Status

Not a separate legal entity

Separate legal entity

Separate legal entity

Registration & public records

Registration not required

Incorporation requires registration at Companies House

Incorporation requires registration at Companies House

Accounts not open to public inspection

Accounts etc open to public inspection

Accounts etc open to public inspection

No obligation to make public any formal arrangements that do exist

No obligation to make public any formal arrangements that do exist

Articles of association are public documents

No such requirement

Registrar must be notified of membership changes

Notification on annual return only

Governing law & constitution

Partnership law and the Partnership Act 1890 applies

LLPA applies, not either partnership law or the Partnership Act 1890

Companies Acts applies

Requires at least 2 partners

Requires at least 2 people to incorporate a LLP

Requires 1 person people to incorporate a Ltd Co

Organisational flexibility

Organisational flexibility

Less organisational flexibility

No obligation to enter formal arrangements between members  – there are default provisions in the Partnership act which will apply, in the absence of agreement on the point

No obligation to enter formal arrangements between members  – there are default provisions in the LLP act which will apply, in the absence of agreement on the point

Companies have to have articles of association

A person may become a member by agreement with existing members – and may leave by death, dissolution, or by agreement (or by giving reasonable notice, in the absence of agreement to the contrary)

A person may become a member by agreement with existing members – and may leave by death, dissolution, or by agreement (or by giving reasonable notice, in the absence of agreement to the contrary)

Member must subscribe and be accepted by directors (who need not themselves be members)

Interest of a member will not generally pass to another, and  eg death, bankruptcy will generally operate so as to dissolve the partnership

If the interest in the LLP of a member passes to another (eg death, bankruptcy), the other may not interfere with the management but will be entitled to receive whatever would otherwise have been due to the member

If the interest of a member passes to another (eg death, bankruptcy), the other stands in the previous owner’s shoes, but may not be registerd as a member without the directors’ consent

No analogous requirement

At least 2 members must be ‘designated members’ and notified to Companies House as such;  and they thereby have additional responsibilities for inter alia administrative and filing duties

Requirement for director(s) and secretary

Liability to third parties

Liability of partners for partnership debts may not be limited

Liability of partners for partnership debts limited

Liability of members for company debts limited to shareholding or guarantee

Liability of partners for wrongful acts done in ordinary course of the partnership business or with the authority of the partners is not limited

Liability of partners for wrongful acts done in ordinary course of the partnership business or with the authority of the partners is limited

Liability of members for wrongful acts done in ordinary course of the company business or with the authority of the company is limited

Many provisions of company and insolvency law designed to protect those dealing with the entity do not apply to Partnerships

Many provisions of company and insolvency law apply to LLPs with appropriate modifications, generally to protect those dealing with LLPs

Company and insolvency law apply to protect those dealing with LLPs

Each member has power to bind the Partnership, unless the person with whom he is dealing knows he does not have that power

Each member has power to bind the LLP, unless the person with whom he is dealing knows he does not have that power

Shareholders do not have power to bind the Company

Departed members also have power to bind the Partnership, unless the person with whom he is dealing knows he has departed, or the departure has been formally notified;  and a wrongful act of a member towards a third party in the course of the partnership business or with its authority makes the partnership also liable

Departed members also have power to bind the LLP, unless the person with whom he is dealing knows he has departed, or the departure has been formally registered;  and a wrongful act of a member towards a third party in the course of the LLP’s business or with its authority makes the LLP also liable

Departed members have no such powers

Member’s responsibilities

There is no distinction as between types of partner - each partner carries equal responsibilities to those carried by a director of a limited company

There is no distinction as between shareholders and directors – a little simplistically, each partner carries similar responsibilities to those carried by a director of a limited company

Shareholders and Directors have different functions;  a person can be one, or the other, or both

Taxation

Existing business of a partnership can generally be transferred to another partnership without being treated for tax purposes as a cessation, and without CGT or CA consequences

It is taxed according to partnership principles (income tax & CGT, not Corporation tax;  partners are individually liable for tax on their shares of profits)

Existing business of a partnership can generally be transferred to a LLP without being treated for tax purposes as a cessation, and without CGT or CA consequences

It is taxed according to partnership principles (income tax & CGT, not Corporation tax;  partners are individually liable for tax on their shares of profits)

Existing business of a partnership cannot generally be transferred to a LLP without being treated for tax purposes as a cessation, and without CGT or CA consequences

It is taxed according to company principles (not Corporation tax;  members are not generally liable for tax on their shares of the entity’s profit

Position under s134 ICTA (now ss44+ IT (EP) A 2003

A partnership is not an independent legal entity in its own right;  a contract with a partnership is a contract with all its members;  therefore a contract between an agency and a partnership potentially falls within these sections.

An LLP is an independent legal entity in its own right;  a contract with an LLP is therefore not a contract with any of its members;  therefore a contract between an agency and an LLP cannot fall within these sections.

A Company is an independent legal entity in its own right;  a contract with Company is therefore not a contract with any of its members;  therefore a contract between an agency and a Company cannot fall within these sections.

IR35 application

Potentially applies if either

(a) worker and associates entitled to 60%+ of profits, or

(b) most of profits derive from provision of services under IR35 engagements to a single client (including that client’s associates), or

(c) that under the profit sharing arrangements, the income of any of the partners is based on the income generated by that partner by the provision of services under IR35 engagements

OR if

payment received direct from partnership can reasonably be taken to represent remuneration for services provided by worker to client

Potentially applies if either

(a) worker and associates entitled to 60%+ of profits, or

(b) most of profits derive from provision of services under IR35 engagements to a single client (including that client’s associates), or

(c) that under the profit sharing arrangements, the income of any of the partners is based on the income generated by that partner by the provision of services under IR35 engagements

OR if

payment received direct from LLP can reasonably be taken to represent remuneration for services provided by worker to client

Potentially applies if either

(a) worker and associates collectively have material interest in the company (in broad terms, 5% ownership or control), or

(b) payment received direct from company can reasonably be taken to represent remuneration for services provided by worker to client

IR35 consequence if within

Partnership is liable to make the deemed employment payment, on the basis of the amounts received by the partnership in respect of the relevant engagements (NB irrespective of the amounts to which the partner is or may be entitled, or in fact receives) - tax & NIC as if employment income

LLP is liable to make the deemed employment payment, on the basis of the amounts received by the LLP in respect of the relevant engagements (NB irrespective of the amounts to which the partner is or may be entitled, or in fact receives) - tax & NIC as if employment income

Company is liable to make the deemed employment payment, on the basis of the amounts received by the company in respect of the relevant engagements (NB irrespective of the amounts to which the worker is or may be entitled, or in fact receives) - tax & NIC as if employment income