Monday, May 12, 2008

LLPs can score over Limited companies (re Entrepreneurs' relief)

Over the years I written and lectured extensively about the issues to consider when deciding on the 'right' structure for a business. (For example in my talk on Incorporation and in my September 2007 issue of Tolley's Tax Digest: Incorporation, Disincorporation and related issues)

I've long maintained, for instance, that the headline tax savings that many people sought through incorporation were just one of the factors to consider. Indeed the tax changes announced over the last couple of years mean the pendulum is swinging. Starting a business as a limited company is no longer even as superficially attractive as it was.

Now there is another factor to consider - in the context of Entrepreneurs' relief. If there are going to be minority investors (shareholders) in the business, they will need to hold at last 5% of the shares to benefit (in due course) from the entrepreneurs' relief and pay just 10% of their capital gain when they sell their shares.

There is no such 5% requirement for members of an LLP.

NB: This distinction will be more relevant for start-ups than for established businesses. The latter would need to first 'disincorporate' but this can be fraught with tax problems as no reliefs or exemptions are available to mitigate the normal tax rules that apply on disposal of business assets (including goodwill) by a company to related parties.

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