Forms of Practice

Section Sole Practitioner Partnership (simple) Limited Liability Partnership Private Company Public Company
Formation

Register with Landscape Institute. Obtain Professional Indemnity Insurance.

No other formal documentation required for setting up/constitution.

More than one individual comes together, to carry out business in common with the intention of making a profit.

Formed under the Partnership Act 1890 with rights and duties sets out in a Partnership Agreement.

“Form of Contract” with default duty of good faith.

Certificate of incorporation issued by Registrar of Companies House under the Limited Liability Partnerships Act 2000 Companies Act 2006 Companies Act 2006
Legal status and management

No acts of parliament governing practice.

Business has no separate identity from the individual running it. Individual has absolute control and full responsibility.

Partnerships Act 1890.

A partnership has no legal entity itself (except in Scotland), only the legal entities of each partner.

It is managed by the partners, who are governed by the Partnership Agreement

Limited Liability Partnership Act 2000.

An LLP is a legal person in its own right. LLP has unlimited capacity & is able to undertake full range of business activities a Partnership could undertake. LLP’s are governed by its members; at least 2 people must be named in incorporation document meaning they are not employed by the LLP as it’s a separate legal
identity.

Use of LLP Agreement similar to P.A.

Controlled by the Companies Act 2006 which covers formation and operation.

Owned by members or shareholders and governed by its directors or MD with supervision of shareholders.

A company is a distinct & separate legal entity in law from its members and directors. It can own property, sue/be sued & enter into contract in its own right.

Company continues whoever leaves or joins for whatever reason.

Controlled by the Companies Act 2006 which covers formation and operation.

Owned by members or shareholders and governed by its directors or MD with supervision of shareholders.

A company is a distinct & separate legal entity in law from its members and directors. It can own property, sue/be sued & enter into contract in its own right.

Company continues whoever leaves or joins for whatever reason.

Finances / Accounts

No legal requirements regarding form of accounts, annual returns (except for Inland Revenue) or statutory books.

Self-Employed for tax purposes.

Partnerships are liable to income tax on their profits whether they are drawn out or left in the practice.

Annual tax returns required for the partnership but each partner is liable for own tax Profits are shared equally – or as stated in the P.A.

No audit is required of the business accounts.

Taxation situation the same as a Partnership ensuring that commercial decision between becoming an LLP or Partnership is a tax neutral one.

Accounts are filed at Companies House.

Directors’ report, balance sheet and accounts need not be filed at Companies House.

Profits are distributed among shareholders in accordance with rights of their shares.

Directors and employees are paid salaries out of the profits which are tax deducted.

Directors’ report, balance sheet and accounts must be filed with the Register of Companies. Reduced requirements for medium companies.

Profits are distributed among shareholders in accordance with rights of their shares.

Directors and employees are paid salaries out of the profits which are tax deducted.

Tax Self-assessment Self-assessment Self-assessment Corporate tax Corporate tax
Size No limit to number of employees although appropriate administration and taxation will be required (Income tax and National Insurance). No size limit for architecture (or similar) professions provided at least 3/4 of partners are registered with relevant professional body No restrictions The number of shareholders, which a company may have, is unlimited The number of shareholders, which a company may have, is unlimited
Liabilities All business and personal assets are at risk. There is no legal continuity on death

All partners are liable for the others actions (in contract and torts).

If action is brought jointly and severally then partners may be sued individually or together until full amount is paid.

Partners are not liable for the criminal actions of others unless they were aware of such actions.

New partner not liable for debts committed before starting. Retired partner is still liable and on death their estate will be liable. Partnership may indemnify a partner against consequences of their liability.

Members’ liability is limited to the extent of the assets of the LLP.

Members are liable for fraudulent or wrongful trading.

Members are liable in tort & the LLP will be liable to the same extent.

A member is not liable for the torts of the LLP.

Shareholders: Not liable personally for torts obligations incurred by the company or by other shareholders. Directors:

Liable for their own torts.

Must prepare & disclose company accounts, prepare annual report on companies finances/dividends, hold AGM, must be audited, (none of these have to be filed at Companies House), Only allowed remuneration as per memorandum, Director owes the company a duty of loyalty and faith.

Shareholders: liability to contribute to the Companies assets is limited to the amount unpaid on their shares.

Shareholders may have different interest also e.g. 40% & 20% therefore their liability and profits will be different. Only liable for debts of the company to the amount unpaid on their shares if the company is limited.

Shareholders: Not liable personally for torts obligations incurred by the company or by other shareholders.

Directors: Liable for their own torts.

Must prepare & disclose company accounts, prepare annual report on companies finances/dividends, hold AGM, must be audited & filed with Register of companies, only allowed remuneration as per memorandum, Director owes the company a duty of loyalty and faith.

Dissolution No legal continuity on death CoC Standard 8: “You should have arrangements in place for the conduct of your business in the event of your death, incapacity or other absence from work.”
  • End of fixed term or specific project (if applicable) death or bankruptcy of any partner.
  • Partner gives notice.
  • Mutual consent.
  • Court dissolution.
  • By agreement between the members.
  • By being struck of the register (e.g. no certificate of incorporation).
  • By winding up/insolvency.

Either by: Winding up/liquidation under the Insolvency Act (1986) – Voluntary or compulsory – once wound up no judgement may be forced against it.

Being struck of the register under the Companies Act (1985) when company is no longer conducting business or fails to present its annual accounts.

Shareholders are personally liable for all debts and obligations in the case where the company is wound up.

Liability is unlimited although it may be limited by agreement or entering into transactions and creditors.

If a company is dissolved by winding up, both members and past members (within past 12 months) will be liable to contribute towards the assets of a company so it can meet its liabilities.

Either by: Winding up/liquidation under the Insolvency Act (1986) – Voluntary or compulsory – once wound up no judgement may be forced against it.

Being struck of the register under the Companies Act 1985) when company is no longer conducting business or fails to present its annual accounts.

Shareholders are liable as guarantors for an amount set out in the memorandum in the event of the company being wound up.

Companies House register NO NO YES YES YES
Additional Notes (Governance / engagement of personnel)

Responsible for everything to do with running business. Limited to type and size of projects you can do.

Where does the money come from if you have quiet spells?

Less formal than company Freedom of action and privacy of its affairs.

Subject to unlimited liability with personal assets at risk Limited powers to borrow money Taxation position is complex

An LLP gives the benefits of limited liability in that it can protect your existing personal assets, while giving many of the tax advantages of a sole trader partnership.

Members have the flexibility to organise the internal structure as a traditional partnership.

Easier to raise outside finance than for a partnership due to security of assets.

Taxation position relatively simple.

All employees subject to PAYE.

Overall taxation likely to be less than partnership, all salaries deductible before calculation of profit for corporation tax purposes, easier to remove an unsatisfactory director than a partner.

Easier to raise outside finance than for a partnership due to security of assets.

Taxation position relatively simple.

All employees subject to PAYE.

Overall taxation likely to be less than partnership, all salaries deductible before calculation of profit for corporation tax purposes, easier to remove an unsatisfactory director than a partner.

Pros You choose your work hours More expertise available from partners = bigger variety of work
  • More expertise available from partners = bigger variety of work
  • Simple to setup
  • Protection of personal assets
  • Less hustle than company
Directors are paid tax free salary, tax is paid from company
Cons
  • Annual/sickness leave payment unavailable
  • Limited opportunities to projects
Equally liable for Partner’s actions Profits are public Paperwork Paperwork

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