Mauris Blandit

Once you’ve decided that you have to or want to set up a limited company or partnership, the next thing you need to decide is which one. The biggest difference between them is how the profit is extracted from the business. A limited company will allow you to pay yourself a salary if you are working for the business and draw a dividend.

As for a partnership, the profits can be divided equally or proportionately and the partnership agreement should set out the rules for this. At the end of the day, it will usually be down to a question of tax and drawing out the money in the most tax efficient way. The most obvious difference then between a company and partnership is that a company is taxed separately from the members (corporation tax). The members will also pay tax on their dividends and any salary they receive.

A partner is taxed individually. In order to work out what is best, it is normally a good idea to chat it through with your accountant. If you do not already have an accountant we can put you in touch with one. If you decide to operate as a partnership, you can still obtain the benefits of a limited company as an LLP.

Whatever way you decide, it is sensible to set out the rules of engagement if you are in business with other people in a formal agreement. You may find it useful to complete the business relationship questionnaire (below), which will show you all the things that can be covered by either type of agreement. When you are ready to commit to an agreement, this is something we can help you with.