The Differences between Stakeholders and Members of an LLP

Ryan Patrick

• 6 min read
The Differences between Stakeholders and Members of an LLP

Understanding the complex roles and duties of various stakeholders is critical in today’s fast-paced corporate scene. Among these stakeholders, stakeholders in corporations and members of Limited Liability Partnerships (LLPs) form two separate pillars, each contributing uniquely to the fabric of modern commerce. As you begin your entrepreneurial activity or seek investment possibilities, understanding the fundamental disparities between shareholders and LLP members becomes not just useful, but vital.

We set out to clarify the differences between owning stock in a company and being a member of an LLC in this article. By delving deeply into each of their responsibilities, rights, obligations, and benefits, we hope to provide you with the information you need to successfully negotiate the complex world of contemporary business ownership. By bringing to light the differences between being a shareholder and being an LLP member, we hope to assist you in making well-informed decisions and creating an environment where investments and entrepreneurship coexist peacefully with the changing dynamics of the world economy.

Limited Company Vs LLPs

Limited liability partnerships (LLPs) are jointly owned and managed by two or more members (partners), as opposed to limited companies, which are held by one or more shareholders. We should first quickly go over the distinctions between a limited company and an LLP to better comprehend the differences between a company shareholder and an LLP member.

What Is The Difference Between A Limited Company and An LLP?

A limited company is a kind of legal body distinct from its shareholders, who are its owners. A portion of the company’s profits is given to its shareholders, who also own it. A board of directors, chosen by the shareholders, oversees the operation of the business and is in charge of setting major corporate policies.

The primary distinction between an LLP and a limited company is that a limited company offers its shareholders more liability protection, limiting their exposure to the amount they have invested in the business.

In contrast, limited liability partnerships (LLPs) allow partners to be partially liable for the debts and liabilities of the business.

A limited liability partnership (LLP), as opposed to a limited company, is a partnership that offers its members limited liability protection.

The LLP structure allows for freedom in how the organization is managed because each partner can choose how to oversee operations and make decisions. Because they are actively involved in running the company, partners in a limited company also have more control over it than shareholders do.

What is a Shareholder?

Any individual, business, or organization that holds at least one share of stock in a company or mutual fund is considered a shareholder. Since they effectively own the business, shareholders have particular rights and obligations. They are able to benefit from the success of a business when they have this kind of ownership. These benefits take the shape of rising stock prices or dividend payments from financial gains. On the other hand, a company’s share price always lowers when it experiences a loss, which might result in losses for shareholders or portfolio deterioration.

The majority of stockholders are the founders of the company. Regardless of the situation, these shareholders hold significant sway over important operational choices, such as the appointment of board members, C-level executives, CEOs, and other senior staff when they represent more than half of the voting stake. For this reason, a lot of businesses tend to shy away from having majority shareholders in their ranks.

Types of Shareholders

Two varieties of stock are often issued by businesses: common and preferred. Common stock is what regular investors buy in the stock market, since it is more widely available than preferred stock.

Preferred stockholders do not often have the same voting rights as common stockholders. Preferred stockholders, however, are entitled to dividends first. Furthermore, even in the event that profits drop, preferred stockholders will always receive their fixed dividends. But dividends on common shares may decrease or cease to be paid entirely during times of subpar business performance.

What are the main types of shareholders?

  1. A majority shareholder: A majority shareholder is one who holds and manages more than half of the outstanding shares of a corporation. Shareholders of this kind tend to be the founders of the company or relatives of the founders.
  2. Minority shareholders: Can own as little as one share of a company’s equity, but no more than 50% of it.

Special Considerations

When it comes to being a shareholder, there are a few things that individuals should think about. This covers the taxes and the rights and obligations that come with becoming a shareholder.

Shareholder Rights

The following rights are customarily accorded to shareholders by a corporation’s charter and bylaws:

  • The right to view the company’s books and records.
  • The right to attend yearly meetings, either in person or through conference calls.
  • The ability to vote on important business issues, such as selecting board members and approving proposed mergers.
  • The right to sue the company for the wrongdoings of its officers and/or directors.
  • The right to dividends in the event that the board determines to pay them.
  • The right to vote by proxy on important issues via mail-in ballots or online voting platforms in the event that they are unable to attend voting meetings in person.
  • The right to demand a fair share of the proceeds in the event that a business sells its assets

Who are the LLP Members?

Though it is still technically possible to create an LLP on your own by using a dormant corporation as the second member, limited liability partnerships must be created with a minimum of two members. There is no maximum number of LLP members allowed by law.

LLP members can be:

  • People sixteen years of age or older;
  • Companies (referred to as “corporate members”)
  • Of any nationality and place of residence

An LLP is required to have two members at all times, but if that number drops—for instance if one member passes away and there is only one remaining—the LLP is not immediately dissolved. Nevertheless, if there are fewer than two members for a duration of six months or longer, the remaining member is held personally accountable for all obligations accrued during that time, jointly and severally with the LLP.

The responsibilities performed by designated members of an LLP include:

  1. Keeping up financial records
  2. Appointing an auditor (where it’s required)
  3. Completing, signing, and submitting the accounts to Companies House
  4. Keeping up official records, such as the Register of Persons with Significant Control
  5. Getting a confirmation statement ready and sending it to Companies House
  6. Notifying Companies House of any other changes as soon as possible, such as alterations to the LLP’s name, registered office address, accounting reference date, or members’ details
  7. Registering with HMRC for VAT (if required)
  8. Submitting the necessary document outlining the LLP’s assets, liabilities, and other relevant information in any insolvency proceedings

Key Differences Between Members and Shareholders

The following are the differences between members and shareholders:

  1. A subscriber to the business memorandum is considered a member. An individual who holds shares in the corporation is known as a shareholder.
  2. Although the bearer of a share warrant may also be a shareholder, they are not members.
  3. Any shareholder whose name appears in the membership record is considered a member. However, it’s possible that some members are not also shareholders.
  4. A public company is required to have a minimum of seven members. The maximum number of members is not fixed. In a similar vein, a private company’s membership can range from two to two hundred. However, for shareholders, there is no minimum or maximum limit, in the case of a public company.

Other Differences Between a Company Shareholder and an LLP Member?

Here are other differences between a company shareholder and an LLP member.

1. Payment and Tax

In the form of dividend payments, shareholders get a portion of the company’s profits based on the number of shares they own. Income tax is applied to non-dividend income, while dividend payments are subject to dividend tax. While members of an LLP automatically split the profits equally. Generally speaking, profit distributions are recorded in a Members’ Agreement (sometimes called an LLP Agreement) and on their profits, each member of an LLP is obliged to pay income tax.

2. Management vs Ownership

Although they may not always have the right to do so, shareholders can participate in the management of their company (for example, by exercising their right to vote at general meetings).

Stated differently, a limited company’s ownership and management are inherently different (even if directors often have the majority stake in smaller businesses). Every member of the LLP is entitled to participate in the management of the LLP and is bound by the regulations outlined in the LLP Agreement. In actuality, certain members will always hold higher positions or manage the company more actively.

3. Risk and Responsibility

Generally speaking, shareholders (assuming they are not also directors) are not liable for the debts, acts, or omissions of the company, except the value of their shareholdings, which may be lost in the event of company insolvency. For instance, shareholders will not be held accountable if a director misappropriates or engages in fraudulent activity with business cash.

Although members of an LLP are not personally liable for obligations incurred due to insolvency, they may be sued in addition to the LLP if they have engaged in irresponsible or fraudulent business.

4. Transferability

Generally speaking, it is easier to transfer shares in a limited company than it is to transfer membership in an LLP, which might need consent from every current member.

Final Thoughts

In conclusion, it is critical to comprehend the differences between members and stakeholders in the corporate world as Creating management and communication strategies that work requires an understanding of these differences.

For assistance with business strategy or to find out more about the differences between members and stakeholders, Incorpuk is the best choice. With our expertise and experience, we can offer you insightful advice that can make your company successful.