Difference between Limited Company and Partnership


The choice of the legal shape that you wish to give to your business firm is entirely dependent on you and this is a complex decision to make, especially, if you are a start-up and there are exchange of ideas and suggestions that intends to formulate a structure with minimum formalities and maximum benefits.

Should I operate as a Limited Company, a Sole Trader, or a Partnership Firm? This is the most common and frequent question one comes across when it comes to instating the business and initiating its operations.

Sole Trader is a single-person establishment which is primarily for small businesses but when it comes to involving multiple people in the business, the options that are left are Partnership Firms and Limited Company.

Under the partnership firm, all the partners share the liabilities and the debts. Partnership however can also be between two businesses because a limited company is considered and identified as a separate identity.

Every firm should consider their vision before finalising a legal identity for the business and the decision should be taken to meet the long-term requirements.

Here are few of the differences between the Limited Company and Partnership Firms:

  • A Limited Company is owned by the investors and the operations are managed by the Directors. Partnership Firms on the other hand are managed and owned by individual partners who are together responsible for the actions taken in the firm.
  • A Company is required to publish their annual accounts, however, only financial summary is sufficient for small businesses and no audit is needed for the companies with turnover less than £ 5.6 million. Partnership Firms however do not need to publish or audit their accounts.
  • In a company, the liability of the shareholders are limited because the company is a separate identity in itself whereas in the partnership firms, partners have unlimited liability and that makes them directly responsible for all the business activities.
  • A Partnership Firm only need to update the HMRC about its operations whereas the companies must be registered with Companies House.
  • The partnership establishment allows the partners to get the earnings from the direct sales and it is also exempted from the National Insurance Contributions. A Company need to pay the corporation tax on its income to the HMRC and file their annual returns at the Companies House.
  • Like the sole trader, you are self-employed in the partnership firm and you cannot be your own employee whereas in a company, you can receive the salary as a director of the business.
  • In the partnership firm, you only receive the personal pension option whereas in the company, the schemes are far more generous when it comes to the benefits.

A business can have any shape and identity as per the demand and requirement but in the longer run, forming a Limited Company has much more to offer than any other forms of legal identity.