LP and LLP Incorporation in Great Britain versus LTD Establishment in Great Britain: Which is Better?

Partnerships (LP and LLP) in Great Britain and Scotland have long been a popular solution among businessmen who…

Partnerships (LP and LLP) in Great Britain and Scotland have long been a popular solution among businessmen who needed to register a foreign company. Instead of incorporating an LTD – an equivalent of a limited liability company – most entrepreneurs picked the easier solution, namely an LP or LLP in the UK.

The current British partnership situation is quite different. The main tax planning task now is not to find a jurisdiction enabling to avoid taxes or conceal the business but providing for efficient operations in view of the business goals and tax burden.

In this article we will review all the ups and downs of LP and LLP establishment in Great Britain, and also investigate the alternatives, including the incorporation of LTD (limited liability companies).

Partnership Creation in the UK: Why LPs and LLPs are Still in Demand?

Even though there are increasing reports about issues inherent in partnerships, the applications for LP and LLP incorporation or for account opening for them are still in great demand.

The basic reason is the former popularity of British partnerships and the peculiarities of their taxation. As a rule, the incomes of English and Scottish partnerships (LP and LLP) are not taxable on the partnership level, and the taxes are paid by the participants (partners) on the incomes as if received directly. Offshore companies registered in Panama, Belize, Marshall Islands, the Seychelles and other classic offshores are usually used as such participants. Since the operations of offshore companies are not subject to tax, the activities of such British partnerships are also not taxable.

And because LPs and LLPs are not taxable in Great Britain (provided that the partners are non-residents gaining profits outside the country), there is no need for any financial statements.

Up until 2017 the partnership owner information was not open to public. This is not the case now but many businessmen who previously used the structures of this kind and do not keep track of the relevant changes still consider this aspect a reliable protection for the beneficiary’s identity.

Even though today’s use of LPs and LPPs is surely to cause problems for businessmen, many of them continue establishing this type of companies, to a large extent stimulated by friends and business partners who have not yet encountered any issues. They are naïve enough to consider British LPs and LLPs a working solution.

According to quite a few businessmen, LP and LLP establishment in the UK via offshore companies is a number one solution because it is cheap, quick and profitable. But we observe banks refusing accounts for LPs and LLPs every day, and the partnerships which already have an account see them closed without any reason.

It is surprising that so little attention is paid to LTD registration in Great Britain, considering a number of benefits this type of company may offer.

What is the Main Drawback of LP and LLP Registration in the UK?

Today’s main issue with the incorporation of English LPs and LLPs is the impossibility of opening an account quickly and maintaining it open. It is highly improbable that any bank would set up an account for a partnership that does not have a long-term positive background of operations, and very few payment systems are willing to open accounts for new established LPs and LLPs.

The reason for that is, considering the global deoffshorization and anti-money laundering processes, that banks find it easier to refuse account opening to nontransparent organizations than lose time and face penalties and bank license revocation. Furthermore, LPs and LLPs having offshore companies in their structure are considered a vivid example of non-transparent legal entities – there is no direct connection to the beneficiary and a high risk of tax avoidance.

This results in a situation when owners of partnerships which are still easy to register are left with a package of incorporation documents and cannot use their company for actual operations.

With LTD companies, on the other hand, granted that one refrains from using nominee offshore structures, you get a working and reliable business tool.

LTD in Great Britain as an Alternative to LP and LLP

There are currently many efficient alternatives to Scottish LPs and British LLPs. One of the options is registration of an LTD (limited liability company) in the UK. This is an appealing solution both for startups and IT businesses and for international holding and trading companies. Transition from a British LP to an LTD is warranty of the company’s good standing in the world: a loyal taxation system, minimum bureaucratic hurdles and reliable protection of investor rights.

As for the other options, many choose to register their company in Estonia, Georgia, UAE, Singapore or Hong Kong. Those jurisdictions do not impose corporate tax, there is only the distributed profit tax.

There are a number of other alternatives to LP and LLP, the appropriateness of which directly depends on the type of company activity, counteragents’ country and availability of capital. SBSB has an extensive portfolio of successful business registrations worldwide and will be able to provide top quality legal services. Our experienced lawyers will be happy to advise you on all aspects of business opening.

If you cherish your time and prefer to entrust legal and tax counseling tasks to professionals, you can fully rely on SBSB specialists to choose the right country for your company!

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