pDm wrote:

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1) Why would a Ltd. company be better than a partnership in these circumstances?

Hope that the other responses help in understanding the difference betweeen Ltd, LLP's and Partnernerships.

For a partnership either a formal written agreement needs to be drawn up or the criteria detailed in the Partnership Act of 1890 is assumed to be in place.

Limited companies are simply divided by the number of shares that one owns in the company.

This is a complex area with a lot of case law. In the hands of the unwary the simplicity of incorporation may be seen as a no brainer but without proper study in this area advice might be given to incorporate where case law exists where similar companies have had the veil disregarded in a court of law. 

I don't even believe that AAT qualified people should be able to give that advice as I don't think that corporate law is studied to any great depth.

Unfortunately, like many qualifications AAT teaches the basics about incorporations that may make the studier believe that they know more about the subject than they really do.

Don't even get me onto unqualified accountants giving advice of this nature!

• Would I be able to act as the primary agent for my clients but sub-contract the formations?
• Yes. The idea here is that an accountant would set up the legal form of the company and you would then represent it going forwards for day to day transactions.
• The big question mark is over whether yourself or the accountant does the period end returns. To cover your own back I would suggest that this work is performed by an accountant.

2) I've read somewhere (on this forum I think) that in order to file returns for a Ltd/Co. you have to be registered as Ltd./Co. yourself - is this true?

Not true, there may be an issue over what your supervisory body allows you to do but the legal form of your company does not dictate the legal forms of the companies that you represent.

• Likewise, as above, would I be able to prepare the paperwork and sub-contract the returns?
• As above, just because you can does not mean that you should. As you are still quite new to this I would give period end returns to an accountant to complete which transfers some of the risks associated with taking this on.

3) Once the investment has matured to a point where the owners want to sell it - how easy is it to disolve a Ltd./Co. vs a partnership?

Selling a limited company is merely a matter of transfering  all (or some dependant upon whether an interest is to be retained) of the shares to the new owners.

I've not had too much dealing with partnerships but as they lack seperate legal form I'm thinking that they are more complex than limited companies.

There are tax implications and you would be dealing with the accountants and solicitors of the purchaser. This is another area best left to accountants

4) What are the comparitive running costs between Ltd./Co.'s and partnerships?

No real experience of partnerships I'm afraid but they always strick e me as being complex messy and potentially litigous arrangements.

Limited companies require annual returns to companies house (£15).

The limited company has totally seperate legal form to the owners (those in ownership of the shares).

Owners of a limited company have a fiduciary duty of care for a limited company similar to a parents responsibility to a child.

The companies money does not belong to the owners and this is a concept that many owners find difficult to grasp espechially when they are used to self employment.

The owners have a right to withdraw capital, take dividends from profits and drawer a salary.

Any other withdrawals they are actually borrowing the money from the company via the directors loan account.

It's all more compex than that but that explains the basics (I think).

Another legal form that you've not touched upon is LLP (Limited Liability Partnership) which has elements of both incorporation and partnerships.

Gill Warren posted some interesting reasoning as to why she went down the LLP route. The following is taken from her post :

"

The set up is similar to a limited company  that is  the LLP has a separate legal entity, which means it can sue or be sued, make contracts and there is limited liability in the event of the LLP going out of business ( i.e. creditors cannot access your personal assets).

The main difference is in the tax on an LLP

With an LLP the individual partners are taxed on their share of the profits under the self assessment system. A tax return is submitted for the LLP partnership as a whole and each partner submits their own tax return including their share of the LLP profits.

By contrast companies pay corporation tax and directors are employees of the company and have tax deducted under PAYE scheme.

One other point on partnerships there is an assumption of equal profit shares in a partnership, but this can be changed to reflect different contributions. I strongly recommend that a partnership agreement is drawn up that states what will happen in certain circumstances ( for example if one partner cannot work as many hours as the remainder, difference in view on strategy etc).

"

You might also find this thread of interest :

http://bookkeepers.activeboard.com/forum.spark?aBID=106474&p=3&topicID=34364108&page=1&sort=oldestFirst

Hope that the above helped a little. The emphasis has to be that this subject matter is a lot larger and more complex than it looks on the surface.

The answer was given on the basis of your statement tht the information was for your knowledge only and that the actual decision over the entities legal form would be in the hands of a qualified accountant.

Decisions made now are fundamental to the companies future and that's an awful lot of responsibility to bear (and well beyond the territory that  your PII would cover you for).

Again, sort for any inherent negativity in the response.

Kind regards,

Shaun.

And a quick get out of jail free card for me...

NONE OF THE ABOVE SHOULD IN ANY WAY CONSTRUED AS ADVICE.

THE INFORMATION GIVEN IS SIMPLY TO SHOW THE REASONING AS TO WHY A QUALIFIED ACCOUNTANT IS REQUIRED IN ORDER TO GIVE ADVICE OF THIS NATURE.

Lol you made me go back to make sure i'd spelled red correctly. Surely if one were to be pedantic, the old joke should be written as "wots blak and wyt and red orl ova? a noozpaypa" That actually reminds me of a story my uncle told me about how he was taught to spell a word as it sounds when he was in primary school. He still can't spell for toffee so i guess that system was a waste of taxpayers money. Mind you he is a big fat liar though lol.

Soz for the hijacking OP, couldn't resist the chance to open the doors for Shaun to meander OT lol.

Edited off topic to OT as we have been recently taught.

Shamus wrote:

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NONE OF THE ABOVE SHOULD IN ANY WAY CONSTRUED AS ADVICE.

THE INFORMATION GIVEN IS SIMPLY TO SHOW THE REASONING AS TO WHY A QUALIFIED ACCOUNTANT IS REQUIRED IN ORDER TO GIVE ADVICE OF THIS NATURE.

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(Now THAT is a disclaimer! And to reassure you, it has been fully understood.)

Thank you for the additional responce, Shaun. After your initial reply yesterday I have to admit to feeling a little down about the whole thing (especially after such a promising meeting with the prospect), so I continued researching on my own and finally came to pretty much the same conclusions as you've outlined today.

It may not be what I wanted to hear/read, but it now makes a lot more sense as to why it's a bad idea for me to do this at this stage in my career.

It's a frustrating position to find myself in, but nobody said this was going to be easy. I'll speak to Mr.X, explain the situation and suggest they speak to a chartered accountant.

As ever, thanks for your time in responding so fully.

pDm