According to statistics from the Federation of Small Business (FSB), there were over 400,000 business partnerships in the UK at the beginning of 2013. Although this only accounts for around 9% of businesses operating in the UK, it is nevertheless an important demographic and there are some very good reasons for choosing to set up a partnership.
If you want to collaborate with one or more people in a joint business venture without having to deal with all the administration and costs of incorporating a company, as well as avoiding the burdens of corporation and capital gains tax, a business partnership can provide the ideal solution. It allows individuals with different skills or assets to come together and each make their own contribution whilst feeling part of a whole. Starting out as a sole trader may be easier in terms of formalities but going it alone means that you generally need to pay for outside experience or expertise; having business partners can ensure that everyone you need is sitting around the same table and working towards a mutual goal.
What kind of partnership do I need?
There are three types of partnership you can choose to set up: an ordinary partnership, a limited partnership or a limited liability partnership (LLP). An ordinary partnership is the most straightforward to set up and is least regulated but it does require everyone involved to be collectively responsible for debts or other liabilities. If you want to limit the liability of certain partners, you can set up a limited partnership which consists of “general partners” and “limited partners”. There’s also the option of a limited liability partnership (LLP) which turns the partnership into a corporate body and essentially protects the partners from business debts. The limited forms of partnerships both have filing requirements and an LLP involves many of the duties associated with running a limited company. In particular, LLPs must audit and publish their accounts which removes the benefit, associated with ordinary partnerships, of keeping financial information private.
How to set up a partnership
If you’re setting up an ordinary partnership, all you need is a partnership agreement which sets out the duties and responsibilities of various partners, their capital contributions, split of profits and exit strategies. A partnership agreement should also be used in a limited partnership but it’s also necessary to register with Companies House. An LLP agreement can be used to set up a limited liability partnerships, it must also be registered with Companies House and a partnership name needs to be chosen and recorded.
Rocket Lawyer UK offers a template partnership agreement as well as an LLP agreement. These documents are extremely important if you want to ensure that all the partners know where they stand at the beginning of a venture and avoid disputes further down the line. For more information about matters relating to partnership agreements, take a look at our hub for running a business partnership which contains various useful Quick Guides.