LTD or LLP

[vic1959]

Hi everyone, I have been asked if there are any downsides in converting from an existing limited company to a LLP. I have a few thoughts but wondered if anyone has an opinion on this. Your thoughts would be much appreciated. Vic

 

[Junaid Abbas]

Well, primarily you need to consider the tax implications. You won't be able to avail any tax reliefs on transition from LTD to LLP ,such as, any unutilized tax losses will be lost. A good way would be to compare company's profits and how much the owners want to pay themselves (withdrawals), and then go for the most tax efficient option.
Also share your thoughts and lets discuss then

 

[vic1959]

[FONT=&quot]My initial thoughts:
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[FONT=&quot]A few downsides :[/FONT]
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· [FONT=&quot]The way that dividends may be used in a LTD company makes it more tax efficient to its shareholders. The members (partners) of an LLP are taxed as if they were sole traders. This means that they are taxed on their share of the profit (which can’t be deferred) at 20% and possibly some at 40%. They would also be subject to NI on their share of the profit. See attached examples.[/FONT]
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· [FONT=&quot]In a LTD company the shareholders are not obliged to take the full profit allowed as dividends and may wish to defer some until it’s more tax efficient to take it. However with a LLP the profit is shared out each year regardless.[/FONT]
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· [FONT=&quot]Limited companies still have a certain amount of prestige when it comes to customers and additional funding etc.[/FONT]
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[FONT=&quot]Advantages :[/FONT]
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· [FONT=&quot]It can be easier to restructure the profit share ratio between members of an LLP than is the case with a Limited company.[/FONT]
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