In the last blog, we looked at choosing the right person to form a business partnership with and the qualities they might possess. This time, we’re looking at the financial and legal set-up of your partnership and what you need to know…
The first thing to do is decide whether your business will be a Traditional Partnership, Limited Partnership or a Limited Liability Partnership. There are different rules for each:
Whilst the rules of joint and several liabilities apply and the business has its own accounts, the profits are distributed as per the partnership agreement and forms part of the self-assessment return of the individual partners.
In this case you must have at least one general partner and one limited partner. Each partner type has different levels of responsibility and liability if the business can’t cover costs. A general partner may be personally liable for the actions of other partners, whereas limited partners are not personally liable.
Limited Liability Partnerships (LLP)
With an LLP, every partner has limited liability and so no one is likely to be personally liable for the business’ debts.
Once this decision is made, the process is reasonably similar for the setting up of the partnership.
How to set up a business partnership
- Choose a name – this can’t be similar to another company, Companies House will advise you if this is the case, and it must end in either suffix; LLP or Limited Liability Partnership but cannot do so in the case of a Limited Partnership. If you are naming your LLP with a different business name, you cannot use the suffix.
- Choose a registered address – With a Limited Partnership this must be your main place of business and must be a physical location. An LLP can use a PO Box address.
- Decide who is responsible for what – In a Limited Partnership, it is the general Partner who takes responsibility for business debts, registration for Self-Assessment and VAT if necessary and other duties if the business is wound up. They are also responsible for the control and management of the business and can make binding decisions. Limited Partners (and those in LLPs) are designated their responsibilities during the member set-up, and cannot make business decisions alone.
- Registration of your business – All members of a Limited Partnership must sign the registration form which must be sent by post with a fee, but in a Limited Liability Partnership this is not necessary. You can register in one of three ways, by post, digitally or through an agent. A Limited Partnership can also become and Authorised Partnership, in which case assets are pooled and you don’t pay corporation tax.
- Report any changes – Both types of partnership should always advise Companies house of changes to business activity, name, address and member details. A Limited Partnership must also advise of any changes to financial contributions of limited partners (unless you are an Authorised Company).
Confused? I’m not surprised, it can get very complicated, and I have simplified it somewhat here. For more in-depth reading on the subject of setting up a business partnership, check the links at the end of the blog, or get in touch with me if you’d like help deciding which type of partnership is right for you and your business. I offer an hour of free business advice, and mentoring sessions are bookable on my website.