When the question arises about the choice of organizational and legal form when creating a company, one of the common solutions among entrepreneurs is to register a limited partnership abroad.
In this blog post we will provide a brief overview of the differences between the most popular organizational and legal forms of companies.
How LP differs from GP and LLP
LP is a legal entity that consists of two or more partners. They can be individuals or legal entities (for example, another company or LLC). Partners can be physically located in any country in the world, but the partnership itself must have a specific location. This location is often situated in another country.
LP is separate from the partners who created it, and operates independently. It can hold assets and enter into agreements.
LP registration is officially held at Companies House, which distinguishes it from a general partnership. GP is understood as an entity where two people are working together under the same umbrella company name.
An LP also differs from an LLP in that all LP partners have no limited liability, while all LLP members are protected.
The accounting and reporting requirements for LPs are also different from those for LLPs. Simply put, to register a Limited Partnership abroad, you do not need to submit documents to Companies House, whereas an LLP must submit a set of documents including invoices annually. The income earned by LP is reported on the organization's tax return, and the partner's personal income is reported on personal tax returns.
Like any legal entity, LLC is legally separated from its owners (founders), that is, it is considered by law as a separate entity, while a person-entrepreneur is the same person. Thus, registration of a limited liability company means the emergence of a completely new organisation.
Likewise, in the event of the death of an individual, his entrepreneurial activity ceases, but the activity of a legal entity continues even in the event of the death of its founder.
A member of an LLC is not considered to be an entrepreneur. Therefore, even those persons who are prohibited by the law from carrying out entrepreneurial activities can be founders of a company and own a share in its authorized capital.
The start-up capital for the business of an LLC is contributed by its founders in the form of authorized capital within one year from the date of the company registration. If in the future there is a need to increase the authorized capital through additional contributions from participants, or vice versa, to return part of the contributions to participants by reducing the authorized capital, this will require additional registration of changes to the company's charter.
Both partners are responsible for managing day-to-day business activities and are focused on running the business. The liability of the general partners is not limited, which means that they can be responsible for paying off the arising debts incurred by the partnership.
LP registration features
If you are planning to register an LP in Europe, please keep in mind that in exchange for depositing a certain amount of capital into the partnership, LP partners have limited liability for the amount they contributed. This means that if any debt is raised to the partnership, the participants will only lose the value they contributed.
Crucially, the limited partner should not interfere with the day-to-day operations of the organisation. Otherwise, he may be liable for the partnership's debts in the same way as the general partner. On the other hand, it is noteworthy that this structure must appoint a general partner who will be responsible for managing the organization and be fully responsible for it.
Is LP tax efficient?
In some situations, registering an LP in Europe may be a more profitable solution in terms of taxation than registering an LLC, since the latter are required to pay corporate income tax. When dividends are paid to owners, the tax must be paid again in the form of income tax. In the case of LP, partners pay tax on their individual profits earned from the partnership.
Starting a business is a multi-stage process, especially if you decide to establish a company abroad. Not everyone can fully understand this confusing issue. Therefore, it is easier if a professional who has been working in this area for a long time will deal with this task. If you decide to establish an LP abroad, for example, register an LP in England or register an LP in Scotland, IQ Decision UK specialists are ready to provide more detailed information on this matter. Our experts will provide comprehensive advice on the choice of organizational and legal form for the future business. We will quickly, and most importantly, with less cost register a business in the EU or another jurisdiction of your choice outside of it.