Partnerships
A partnership is an arrangement where two or more parties (people or even businesses) agree to cooperate to advance their mutual interests, preferably via a written agreement. There are three types of partnership:
Some features are common to all types of partnership. The partners share all risks, costs and responsibilities of being in business together and any profits are shared (unless agreed otherwise). Each partner is responsible for paying tax on their share of the profits and for their own NI contributions too. Each partner must register for Self Assessment with HMRC and complete annual tax returns. In addition a nominated partner must submit a partnership return to HMRC. Partners raise money for the business from their own assets or loans and manage the business personally, although certain responsibilities may be delegated and it is possible to have sleeping partners that contribute money to the business without being involved in the daily running. Records of business income and expenses must be kept.
Ordinary Partnerships
An ordinary partnership has no legal existence distinct from the partners themselves, so if any of the partners resign, die or become bankrupt, then the partnership must be dissolved (although the business itself can still continue). All partners are jointly liable for any debts accrued and are equally responsible for paying these off. To this end any creditors can claim the personal assets of any of the partners, even debts caused by other partners. If a partner leaves, the remaining partners may be liable for the entire debt of the partnership.
Limited Partnerships
A limited partnership is made up of ordinary partners and limited partners. Limited partnerships must register with Companies House but don't generally have to submit annual returns or file accounts because HMRC will set up the partnership's tax records. Unlike in ordinary partnerships, any partner's liability is limited to the amount of money they have invested in the business and to any personal guarantees they have given to raise finance. This means that members have some protection if the business runs into trouble
Limited Liability Partnerships
Limited liability partnerships must have a minimum of two designated members. If this number falls to one, every member is deemed a designated member. Limited liability partnerships must register with Companies House, submit annual returns and file accounts with Companies House. HMRC will set up the company's tax records. A partner's liability is limited to the amount of money they have invested in the business and to any personal guarantees they have given to raise finance. Again this means that members have some protection if the business runs into trouble.