Contractors’ Questions: Is LLP best for Plan B?

Contractor’s Question: I have been a consultant for many years but now want to grow my business by bringing in other consultants. A simple company, wholly owned by me, was sufficient in the past, but in future the key consultants will want a stake in the business. I would like to retain control of the firm initially but want a flexible way of sharing the profits. Can this be achieved using my company or would I be better off starting anew?

Expert’s Answer: You could use your existing company, but you would need to be careful about how you give the other consultants shares in it. Starting afresh with a partnership structure may give a better result.

Giving a consultant shares in a company brings tax implications. This process is generally less restrictive where a partnership is used. Similarly, paying salaries and bonuses through a company payroll can incur higher taxes, so you should consider using a partnership. In this, you and your partners would be self-employed for tax purposes.

If the nature of your consulting means you need the benefit of limited liability protection, then a limited liability partnership (LLP) would be appropriate. An LLP is a cross between a partnership and a limited company. You can organise your business and pay tax in the same way as if you were an ordinary partnership, but your personal liability for debts of the business may be limited.

Operating as an LLP brings similar administrative burdens to functioning as a company, including placing accounts on public record every year.

Regardless of how you operate, you should have a written partnership or shareholders’ agreement. This will avoid any arguments about how you share the profits and will help to resolve any disputes.

The expert was Jon Sutcliffe, partner at Kingston Smith LLP.

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