'Just The Two Of Us': Business Partnerships Explained

When considering starting up a business, there are a number of factors to think about. One of the most fundamental is deciding on the type of entity to run your business under. Typically, the most common business entities are sole traderships, limited companies and partnerships. From Richard and Maurice McDonald, co-founders of McDonald's to Bill Hewlett and Michael Packard and Steve Jobs and Steve Wozniak, some of the world's leading and most pioneering companies were based on successful business partnership roots. Unfortunately setting up a partnership requires more than just a good idea - it involves meeting certain criterion and adhering to a number of legal requirements and obligations. If you are considering starting up a business with a partner, you should ensure that you have all the necessary knowledge before making any decisions. What is a partnership? As the name suggests, a partnership as a business structure denotes the coming together of two or possibly more partners in order to advance a business idea with the intent of making profit for both parties. The partners usually combine labour, share profits and take liability for any losses which may occur however the percentage share which each party owns can differ in amounts. What are limited liability partnerships (LLP)? LLPs combine typical features of a standard partnership and a limited company. In similarity to a limited company, limited liability partnerships offer one or more individuals a degree of personal asset protection from business debts. If things should go wrong, the LLP as a whole will be responsible for any debt accrued rather than each person. Limited liability partnerships are often found in association with solicitors, surveyors and accountancy firms although unrestricted to these sectors. This is because the LLP structure was introduced in 2001 in order to allow the larger professional firms trading as partnerships some of the security of a limited company. An LLP must have at least two partners who will usually share the responsibilities and profits of the businesses. Each limited liability partnership must have a 'deed of partnership' or 'partnership agreement' which will give a full outline of each member's rights and responsibilities. Because of the limited nature of the agreement, partners are not held responsible for other member's possible misconduct. At least two 'designated members' must be appointed in every LLP who will have a number of additional responsibilities such as; ensuring that the partnership is registered at the Companies House and preparing, signing and delivering the accounts and the annual report to the Companies House. These members will be held legally responsible should agreed activities not be completed. How do I set up a partnership? Turning yours and your partners' business ideas or ambitions into a registered partnership must be done the right way in order to ensure that you are following all relevant legislations and rules. It is best to get this right in the initial stages and avoid any penalty fees further down the line for amateur mistakes. The first step is talking to the professionals - you may be an expert in a certain field and want to base your business around this however this does not mean your are necessarily an expert in starting up a business and the good news is that you are not expected to be. Moreover from just registering your partnership properly, there will be a number of requirements along the way such as efficiently preparing the partnership accounts - it is imperative that these are completed accurately as partnership tax returns will be based on these. However these may be completely alien to those starting up their first business. Many professional accountancy firms can not only offer you advice on partnership accounts and tax but also take responsibility for these to ensure that they are in perfect order and submitted on time, which could prove one less thing to worry about.