Do I set up a Partnership or a Company

[BrendonJ]

4 friends and I want to set up our own IT Consultancy.

Which would be better:
1. A limited liability company (ie normal company)
2. A Partnership
3. A limited liability partnership (is there one?)

Many thanks.

[bif]

Difficult question, my accountant always looks at the worst that could happen, having decided, what if any are your liablities if were to all go belly up ?

The Bank, Inland Revenue & VAT will get their share whatever almost whatever. On the advise of my accountant, we operate as a Partnership which I am told in my circumstances to be the most tax efficent, over either a Limited Co. or Limited Partnership.

[vixpy1]

I've always been told to go limited company as it offers the most protection from the lawyers.

[BrendonJ]

Thanks BIF,

Can you remember why your accountant said partnerships were more efficient?

[rsvmilly]

How much do you trust your friends?

If it goes belly up then as Partners, each and every one of you are potentially liable for the whole of the outstanding debts. Basically, the creditors will come after whoever can afford to pay. Regardless of whose fault it was.

With a limited company, your loss is limited to the amount you've invested into the company.

For the sake of your friendships, I'd suggest the limited company.

[bif]

Basically I understand that "The Partners" can claim for more items against expenditure, No annual returns to keep upto date at Companies House, No Corpartaion tax, No Company NI, just personal "stamp", you can draw down what salary you want [subject to agreement of the Partners] and the business can afford at any time, you are not therefore tied to an agreed salary to be topped up with dividends.

In short, my experienced has been based on having used 3 different accountants, this last one which I have been with for probably 12 years or more is not cheap, but I can sleep well at night knowing or beleiving he has carried the accountancy tasks to the best of his ability, and he`s tax deductable!
Barry

[thepeoplespal]

bif said:

Basically I understand that "The Partners" can claim for more items against expenditure, No annual returns to keep upto date at Companies House, No Corpartaion tax, No Company NI, just personal "stamp", you can draw down what salary you want [subject to agreement of the Partners] and the business can afford at any time, you are not therefore tied to an agreed salary to be topped up with dividends. In short, my experienced has been based on having used 3 different accountants, this last one which I have been with for probably 12 years or more is not cheap, but I can sleep well at night knowing or beleiving he has carried the accountancy tasks to the best of his ability, and he`s tax deductable! Barry

Just make sure you get a good partnership agreement set up otherwise the Partnership Act 1890 comes into play and that basically means if you fall out you have to dissolve the partnership.

So you need to think about addressing the worst things that could happen to one or all of you. i.e. A partner is not pulling their weight, a breakdown in relationships, one of you die, rights to buying a partner out, how capital is split. etc etc.

You probably need to address this with a Ltd Co too, plan for the worst, hope for the best.

[vixpy1]

bif said:

Basically I understand that "The Partners" can claim for more items against expenditure, No annual returns to keep upto date at Companies House, No Corpartaion tax, No Company NI, just personal "stamp", you can draw down what salary you want [subject to agreement of the Partners] and the business can afford at any time, you are not therefore tied to an agreed salary to be topped up with dividends. In short, my experienced has been based on having used 3 different accountants, this last one which I have been with for probably 12 years or more is not cheap, but I can sleep well at night knowing or beleiving he has carried the accountancy tasks to the best of his ability, and he`s tax deductable! Barry

But shirely the most tax effective was is to be a ltd company and pay 10% corporation tax and then 20% tax on Divendeds (thats 30%) as opposed to 40% higher rate tax ?

[Stella star]

Potentially - the company will have much higher admin costs than the PS.

LLPs are good for exit strategy planning

If you set up a co and end up doing all the work for one person/company - IR35 - it ends up being less efficient and it's a nighmare.

CT is 0% unitl 10k, effetive rate of 23.75 10k until 50k, 19% 50k until 300k, etc

Tax on divends is 10% up to higher rate of 32.5%

[dcw@pr]

Stella star said:

CT is 0% unitl 10k

not since the last budget....

[Stella star]

That applies until 31 March 2005 and so is current - but the FB has not yet received Royal Assent -

[XM5ER]

My gut feeling for your business would be to go Ltd.

You will need damn good professional liability insurance and if that fails then at least you don't lose your house.

Worst case scenario obviously.

[kevinday]

XM5ER said:

My gut feeling for your business would be to go Ltd. You will need damn good professional liability insurance and if that fails then at least you don't lose your house. Worst case scenario obviously.

With a ltd. company the company is a separate legal person, so provides protection, however do consider a LLP as this can provide you individually with protection whilst minimising the admin costs. Your liability is limited to your initial capital input (plus any further capital paid in). With this you would not lose your house in a worst case scenario.

[sb-1]

We started out as a Parnership,however when turnover got to a certain figure,our accountant advised it was most tax efficient to go Ltd..have been Ltd for about 18 Months,probably to early to say if this is true...I'm sure if you spoke to 3 accountants they would all have there own views on this ,......

Main drawback with going ltd.,after a new setup is that directors guarantees have to be given on various financial dealings,so this lessons the advantages of going Ltd in my view.

Steve

>> Edited by sb-1 on Tuesday 3rd August 08:26