Should GPs abandon their partnership status in favour of the limited liability offered by incorporating as a limited company or a limited liability partnership (LLP)?
Daphne Robertson of DR Solicitors examines these business vehicles and the different accounting treatment and legal issues.
A company is a separate legal entity with rights and obligations distinct from those of its members. This means that a company can enter into contracts and own assets in its own name, and these belong to the company and not to the shareholders. If a partnership decides to incorporate, the partners would become shareholders (owners) and directors (managers) in the Limited Company, and key information about the company (including finances and ownership) would be published at Companies House. The rules about ownership and management and set out in the Company Articles and the Shareholders Agreement. This is very different from a partnership where ownership and management are not separated and all information is kept private.
The expression “limited” refers to the limited liability of the members or shareholders for the company’s debts. If the company becomes insolvent then each shareholder is only liable for the amount which remains unpaid on his shares, even if there are many thousands of pounds owed to creditors. This is in contrast to partners in a partnership who are personally liable for all the debts and liabilities of the practice.
Limitation of liability is one of the key attractions of Limited Companies, but the trade off is the increased public disclosure required, and an associated greater burden of regulation.
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