When you are running a business, or if you are in the process of setting one up, it is vital to give careful consideration to your business structure. Partnerships are one such structure that should be explored, as their flexible nature mean they can suit a number of arrangements. This article explores partnerships in more detail, from the general features to the different types available.
Features of a Partnership.
A partnership consists of two or more owners (which can be individuals, limited companies or partnerships) entering into business together with the common view of making a profit.
These partners, or ‘members’, will share both the profits and the losses of the business. Factors such as liability, management and investment will, however, vary depending upon the type of partnership adopted. Even so, it can be useful to document the details of your business structure within a Partnership Agreement so as to ensure each member is aware of his or her position.
Partnerships have many advantages, namely that they are much easier to set-up than a limited company, and they are also much more flexible. With less formalities and paperwork to organise, you can begin trading under a partnership relatively quickly. However, not all partnerships have a legal identity, and so do not benefit from limited liability. That is why you need to give thought as to which type of partnership is most suitable for your business.
Types of Partnership.
There are 3 types of partnership:-
1. General Partnership.
The outline of a general partnership was laid out in the Partnership Act 1890, in which it is described as ‘the relation which subsists between persons carrying on a business in common with a view of profit’. This structure remains the same, and sees each member share equal rights and responsibilities, as well as joint liability for debts. This can have significant implications, as a general partnership does not have the protection of a legal identity. Therefore the partners do not have limited liability, meaning any of their personal assets could be used to pay back creditors.
2. Limited Partnership.
Introduced in 1907, limited partnerships consist of one or more general partners, and one or more limited partners. While both share the business profits, there is a marked difference between the two roles. General partners are responsible for the management and day-to-day running of the business, placing them with full responsibility (and therefore putting their assets at risk should the business run into trouble). On the other hand, limited partners simply invest money, meaning personal liability is reduced to the sum they have contributed towards to business.
3. Limited Liability Partnership (LLP).
Limited Liability Partnerships came into action in 2000 and can be seen as a halfway house between a general partnership and a limited company. While there is more paperwork involved and an application must be submitted to Companies House, the business will obtain a legal status. This can be incredibly beneficial, as every partner will have limited liability, protecting their assets should the business face any debts.
What Type of Partnership Should You Choose?
For assistance deciding which type of partnership is best for your business, speak to a legal expert. A solicitor will be able to provide you with detailed information on each structure, outlining the benefits and risks of each. They can then help you complete a Partnership Agreement, along with any other legal matters that need to be addressed.