Partnerships

In the overall business population in 2015, there were:

  • 1.8 million companies (32%),
  • 421,000 ordinary partnerships (8%).
  • 3.3 million sole proprietorships (60% of the total),

You must choose a ‘structure’ for your business and it will define your legal responsibilities for:

  • The paperwork required to get the business started
  • The taxes you’ll have to manage and pay
  • How you can take the profit the business makes
  • Your legal liabilities if the business fails or makes a loss.

Remember, the type of company you chose is not about the size of the business but more about what level of legal liability you are prepared to risk (see further below).

Let’s assume that we are talking about setting up your business just for you and a couple of friends/others.

The first question you must ask is – “Do I intend to make a profit?”

This is an important question because you can form an ‘unincorporated association’ if your setting up a small club or group and don’t intend to make a profit. There are also separate rules for Charities.

If you are going to be “for–profit”, there are 3 basic types of company:

  1. Limited Company
  2. Partnerships (Ordinary and Limited Liability Partnerships)
  3. Sole-trader

All businesses are regulated by the Companies Act 2006 and HMRC regulations.

This course assumes that you are starting a business to make a profit and so we will cover Ordinary and Limited Liability forms of the Partnership business structure.

What is a partnership?

A Partnership is where several people, normally who have a common practice or profession, form a business from which the profits are shared between the partners in equal or pre-agreed shares as set out in a Partnership Agreement.

  • Each partner reports business earnings, expenses and profits through their personal tax returns.
  • Each partner shares the business liabilities – financial and non-financial.
  • In addition, a Lead Partner is responsible for the Partner reports but the business itself has no tax liability.

Limited Liability Partnership

A Limited Liability Partnership (LLP) is a nuanced version of a Limited business between a Partnership and a Limited Company.

An LLP is where the Partners are limited in their business liability but the LLP doesn’t attract any of the tax advantages of a Limited Company.

Therefore, the LLP has the advantage of reducing the personal liability of the partners while retaining the simpler personal tax, reporting and profits regime in the proportion set out in a Partnership Agreement.

Who are they good for?

Partnerships are good for professionals who share common or complementary skills and wish to provide those as services to others – typically a group of experts who want to form a consulting practice.

In order to be as accurate as we can, some of the content has been taken from official websites and is available under the Open Government Licence v2.0, except where otherwise stated.

© Crown Copyright

 

Course Information

Estimated Time: Approximately 1 Hour. You can take it in bite-sized chunks.

Difficulty: Intermediate

Follow-on

FREE

Please enrol in one of the membership groups to get access to this course.

Starting a Partnership

Expenses and Allowances

General Information and Tips