A partnership is a business structure involving two or more individuals. Each partner shares the responsibilities of the business along with the profits made. There are three different types of partnerships that you need to consider if you’re thinking about going into business with someone.
General Partnerships
A general partnership is the most basic form of a partnership and as such, the most common. This is where each partner is equally responsible for the business’s debts, obligations and losses. Partners do not have to be people – they can be a limited company as this is recognized as an entity in and of itself. Each partner will pay tax on the profits they receive and will have to submit a personal self-assessment when it comes to filing their taxes. It’s important to note that in this type of partnership, no formal filings or paperwork are needed to get set up, so you should make sure that you have a Partnership Agreement in place. This is a private but highly recommended document that will protect you against any changes that might affect your working relationship with your chosen business partner.
Limited Partnership
In a limited partnership, there are two types of partners; General Partners and Limited Partners. General Partners are responsible for the day-to-day running of the business and are personally liable for its debts and obligations whereas Limited Partners, have limited liability and are only responsible for the amount of money they have invested into the business. Limited partnerships may also consist of ‘silent’ investors. It’s important to note that limited partnerships MUST be registered and a Partnership Agreement should be put in place to protect yourself.
Limited Liability Partnership
A limited liability partnership (LLP) is a structure where each partner’s liabilities are limited to the amount of funds they’ve invested into a business. LLPs mean that if the partnership doesn’t work out then creditors would not go after a partner’s personal assets or their income. You’re most likely wondering how an LLP differs from a limited partnership? Well, in order to establish a limited partnership there has to be at least one General Partner who is responsible for all (unlimited) liability, whereas with an LLP, all partners benefit from having limited liability.