Choosing a partnership structure
You and your business partner may have a fantastic business idea and wish to launch your business as soon as possible, but before you do so it is vital that you give adequate thought to what type of partnership will best suit your needs.
Alternatively, you may have been in business for some time and have the opportunity to join forces to create a partnership, or you might have been offered the chance to join another business, and are wondering how best to proceed.
‘Whatever situation you are in you will need to give adequate consideration as to what will be appropriate in your circumstances’ explains Mark Parnall, Managing Director at Parnalls Solicitors, ‘There are three options which each have different levels of risk, liability and accountability.’
An unincorporated partnership
One option is the unincorporated partnership, in which the partners can be either people or companies. You will have to register with HMRC as a partnership, and nominate which of you is going to be responsible for accounting to HMRC. The partners share their profits and each submits their own tax return and pays the tax on their share.
Whilst this option is perhaps the most straightforward, the partners are jointly and severally liable for the debts of the partnership. This means that, unlike a limited liability partnership or company, you have no personal protection in the event that the partnership becomes insolvent.
It is likely to be easier to raise finance for this type of partnership, because potential lenders will look at the personal assets of each of the partners as a factor in determining the risk of lending the funds. Another issue to consider is that disagreements can arise between partners so, despite its relatively informal nature, it is vital that you obtain legal advice to assist you with the construction of a partnership agreement that sets out duties, rights and obligations.
A limited company partnership
A partnership does not have to be between individuals. It is possible for one or more partners to be a limited company. Before you enter into partnership or take on a second person into your business to form a partnership, you may wish to consider whether it would be best to incorporate a limited company before doing so. A private company is limited by shares, so the company has shareholders and the liability to creditors of shareholders is limited to their original investment.
A company director will run the company on behalf of the shareholders. It is possible for you to be the director and sole shareholder, making this a viable option for your half of the partnership. There are advantages to a limited company incorporation: you will have less personal exposure should the partnership fail, and you will also benefit from limited liability protection.
The disadvantages are that there are costs incurred in setting up a limited company, and you will need to submit annual accounts and financial returns which will be publicly available.
You may find it harder to get funding than if you were in an unincorporated partnership, but there are increased protections in the limit of liability should things go wrong.
A limited liability partnership
A limited liability partnership, or LLP, is similar to a limited company in that it protects individual members’ assets. Unlike a limited company there are no shares, shareholders or directors. There can be a flexible number of partners, called ‘members’, but at least two have to be responsible for filing the annual accounts of the LLP (they are called ‘designated members’). This means that you need to have at least two members of an LLP. As with an unincorporated partnership, the members take their share of the profits from the LLP which is taxed as their individual income; so each member has to be self-employed. LLPs are registered with Companies’ House and the agreement between the members should provide the share that each member receives.
This can be a popular choice for partnerships as it combines the advantages of a partnership with the peace of mind of a limited liability company. Flexibility can be written into the members’ agreement, which means that members can join and leave. The downsides of an LLP structure is that the partners must disclose their income publicly and are required to start trading within 12 months of incorporation, failing which the LLP will be struck off.
Seek expert legal advice
The option that is right for you will depend on the nature of your business, your plans for the future, and your circumstances. Because no two business plans are the same, it is worth seeking advice at an early stage from a specialist lawyer who can advise you on the structure of your partnership and the necessary provisions for your partnership agreement or members’ agreement.
At the outset prospective partners tend to focus on a rosy future together, but a lawyer can identify potential pitfalls and weaknesses in a business plan, provide you with a bespoke partnership agreement tailored to your specific circumstances, and ensure that there are clear provisions in the event that something goes wrong.
For advice on how best to structure your partnership, please contact Mark Parnall on 01566 772375 or email firstname.lastname@example.org
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.
KATHERINE FLASHMAN KITSON CELEBRATING 25 YEARS AS A DIRECTOR OF PARNALLS
Do you know the difference between…
When to consider appointing a professional attorney
Should I get a cohabitation agreement?
The Need for Updating Wills
The Right to Make Noise
Ill-health pension transfer not liable for IHT
Legal Time Limits - why so important?
Would you pay a premium for a south-facing garden?
Video-witnessed wills to be made legal
New Planning Relaxation Is Not the Whole Storey
How to minimise delays in obtaining Grant of Probate
Could you benefit from the Green Homes Grant?
A SHOCK TO THE SYSTEM: new electrical safety regulations for residential tenancies
Property of Cornish residents who die without a will goes to Prince Charles
Does your lawyer progress your accident claim efficiently and provide you with a personal and professional service? Can i change solicitors for my accident claim?
What effect could the new changes to stamp duty have on property sales?
Preparing to sell your Launceston property
Staying safer in video meetings
Making Sure Your Great New Home Comes With Clean Air
Property Market Re-Opens in England
Coronavirus: Wills and Powers of Attorney FAQ
Medical Care Received Not Up to Scratch?
Had an Accident in Someone's Home?
Accident or Injury Involving a Dog?
Social Distancing No Obstacle for Parnall's Mobile Document Signing Team
Coronavirus (COVID-19) and Commercial Property Legal FAQs
Rent Charge Suspensions: Protecting Your Interests
Been Asked to Sign an Employment Settlement Agreement? Seek Advice Urgently...
Services Update: Continuity of Legal Service Provision
Advising You in Uncertain Times
Could carelessness on social media land you in court?
Is an electronic signature on a commercial property document acceptable?
What happens when there is no health & care LPA in place
Social Media Training for Businesses
Information to gather for your probate solicitor
Gazundering, what it is and how to avoid it
Relief from forfeiture – what happens if the tenant forgets to pay the rent?
Not so safe at work - compensation for an accident at work
New organ donation law: giving you control
Running a business from home
Have nude photos of you or your teenager been posted online?
Landowners’ rights and the Electronic Communications Code
Building in your back garden
Christmas is a time for giving (and inheritance planning)
Buying the freehold of your leasehold house
Redeveloping an empty pub for commercial use
Why it takes time to obtain the Grant of Probate
Social Media: The unconscious privacy threat
Is your reputation being threatened?
Making a will after your spouse or partner has died
Interns celebrate completion of internship at solicitors
Selling your home in a flat market, some top tips
Claiming compensation for a serious road traffic accident
New Media and Communications Court list reflects surge in internet defamation claims by Laura Baglow
Has your personal information been shared without your permission?
Planning your escape to the country, what you need to consider – part 2
Government consultation on new national model for shared ownership
Choosing a partnership structure
Planning for what happens when you die by Deborah Adams
Changes to legislation could offer protection for tenants in the private rental sector
Move to the country - Part One
The risks of DIY probate
Will your septic tank still be legal in January?
The death knell for ‘kiss and tell’?
Making a will when you retire
Selling your property at auction
Not looking so good - your guide to compensation for botched non-surgical cosmetic procedures
New threshold of seriousness in defamation proceedings
Legal considerations when building a granny annex
Choosing the right person for your power of attorney
Formal Interviews - Do you need legal representation?
Privacy rights and aerial images
Trustees’ duty to give information to beneficiaries
Five problems with a leasehold property
Taking your first commercial lease
Is your organisation protected from employee social media legal risk?
Have you been targeted by negative social media posts?
Farmers be alert when being inspected
Help for House Sellers?
Don’t let your digital assets end up in a digital grave
Valuing an estate for probate
Development proposals and your local authority search
What can you do if your child is injured in a serious accident
NetRights welcomes new protection for social media users
SHOULD I GET A LAWYER FOR A SPEEDING OFFENCE?
Supreme Court recognises that social media is a “casual medium” in libel battle
Choosing the best conveyancer who is right for you
Making a will after a second or subsequent marriage
Option or promotion agreement – which is best for landowners?
Anonymous pub and restaurant online reviews leave a bad taste
Have you had an accident involving a horse?
Help to Buy – beware of some cracks in the structure
Understanding Lasting Powers of Attorney
Changes to Energy Performance Certificate for Landlords
Had a cycling accident? Your route to obtaining compensation
New year, new home: tips to sell your home in the New Year
Tax Planning for your inheritance
Hearing loss: when your employer may be liable
Buying a home for your retirement, five things you need to consider
Farmers plan to diversify after Brexit
Ministers press ahead with probate fee shake-up - reports BBC News
Botched dental treatment? You may be entitled to compensation
Why a Health and Welfare Power of Attorney is a good idea
Will the new charge on building developments in Cornwall affect you?
Energy Performance Certificates – Do They Matter?
HMRC Challenging Stamp Duty Land Tax Payments
Ben Mitchell qualifies as a solicitor
The potential implications of Brexit on employment law
Appointing a guardian for your children
Houses in multiple occupation – new rules from October 2018
New Agriculture Bill published
Will Brexit affect my pension?
Dreaming of a holiday home? Sort out the legals before putting your feet up
Lasting Power of Attorney by Deborah Adams
Settled status after Brexit by Alexis Hager
How to choose an executor to administer your estate when you die
How overage agreements can boost profits from your land
Top tips for first-time buyers
How Could Brexit Affect My Farm?
Wills & Succession in Spain by Deborah Adams
Brexit – an international and local view by Alexis Hager, Litigation
Capital gains tax - important facts for non-residents of the UK
Buying a home: the importance of making sure the seller is entitled to sell
Changing a will after someone has died: it is possible and it could save you money
Your responsibilities when you have people working in your home
Sad passing of Battle of Britain pilot who served with Parnall family member
Considerations when buying a heritage property
Disciplinary proceedings at work: guide for employers
Employers should have a disciplinary process in place, but just following this may not be enough to avoid falling foul of the law and exposing yourself to the risk of an employment tribunal claim.