Property Business: Limited Company, Sole Trader or LLP?

Sourced South East / April 29, 2019

Still happy operating your property business as a sole trader? Or perhaps you are considering becoming a limited company? And who knows, in the future, if successful enough, then you might even consider going down the LLP route.

To give you some background into each company structure, here are some of the main Pros and Cons of each:

Private limited company

The private limited company structure is the one most companies in the UK choose to adopt. The main reason being that they prefer to remain ‘private’. Only around five per cent of companies have public limited company (plc) status.

1. It’s easy to set up – simply do so online, then claim the cost back on tax (you’ll pay Corporation Tax).
2. There is limited liability for the owner/s i.e. you won’t lose your house if the company goes under (just the value of your shares).
3. It provides a certain amount of prestige – more than as a sole trader.
4. You are due Corporation Tax rather than Income Tax. The former is currently lower and due to come down even further in a couple of years.
5. It’s possible to raise capital for the company by issuing shares.

1. There’s a lot more administration and accounting to keep up with than if you were a sole trader.
2. You have to register with Companies House, which means your company’s financial details are available for public scrutiny.
3. Getting out money isn’t exactly straight forward.
4. You’ll have accountancy and other set-up costs.
5. You can’t be a director if you’ve been disqualified in the past, or are listed as being currently bankrupt.

Sole Trader

Again, as a Sole Trader you can easily set up online. Simply register to pay Income Tax online to HM Revenue and Customs (HMRC) via self-assessment.

1. You get to make all the decisions as far as the company is concerned.
2. People will only know your company finances and other business if you choose to tell them.
3. There’s no staff to have to see too.
4. You don’t have to get annual accounts prepared by a professional accountant.
5. You can make decisions fast because there’s no one else to have to consult.

1. Your house could be at risk if you can’t pay off your company debts.
2. If you fall sick or get injured and can’t work, you won’t have any income (unless you’re insured).
3. Some larger companies won’t hire sole traders (they have to be a limited company).
4. Unlike with a limited company, you can’t raise capital by selling shares.
5. You’ll pay a higher tax rate than if you were a limited company.

Limited Liability Partnership (LLP)

Mostly used by companies who offer professional services such as doctors, architects etc, as well as family businesses, this type of structure can prove very tax efficient. Like a limited company, it must be registered at Companies House.

1. They are only for profit-making businesses i.e. charities etc. can’t get LLP status.
2. Members have limited liability to the extent they are only liable for the amount of money they have invested in the business.
3. Its management is flexible i.e. it doesn’t have to conduct board meetings and can make its own decisions without consulting shareholders.
4. It’s actually less expensive and easier to set up and manage than a limited company.
5. It’s also easier to close – taking just three months to do so on average (compared to 12 months for a limited company)

1. It’s possible to sue an LLP
2. Its accounts must be made available for public viewing.
3. You’ll need to submit annual VAT returns (if VAT-registered).
4. Difficult to attract investors as they would have to be prepared to carry company responsibilities.
5. Bigger penalties for tax non-compliance.

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