WHAT IS A PARTNERSHIP?
A business partnership is a structure used mainly, but not exclusively, for small businesses. It is a voluntary relationship between 2 or more people who want to share the running of a single business. The people running the business own the profits and the associated liabilities. They must pay tax on their share of the profits of the business.
There are several types of partnership, the main being ordinary partnerships and limited liability partnerships.
ORDINARY OR TRADITIONAL PARTNERSHIPS
(NORMALLY REFERRED TO SIMPLY AS “PARTNERSHIPS”)
This is the most common type of partnership. The partnership is in many ways similar to a sole trader business (see link to sole trader) except that there are more than one proprietor:
- The partners share ownership of the assets and are responsible for the liabilities
- The partners pay tax on their share of the profits
Each partner and the partnership itself must be registered with HMRC and file tax returns. One member is designated as the representative partner but all partners face penalties if the partnership returns are not filed on time.
A major disadvantage of partnerships is the partners are liable for each others’ business debts, including consequences of fraudulent activities.
LIMITED LIABILITY PARTNERSHIPS (LPPS)
LLPs were introduced in 2001. In legal terms they fall between ordinary partnerships and limited companies:
Like ordinary partnerships
- The LLP has more than one partner
- Tax is paid on the profits of the business
- There is no share capital
But like limited companies
- They must be registered with Companies House and file annual accounts
- The liability of the partners is limited to a pre-arranged amount. In the event of a catastrophic failure of the business, the partners are not personally liable for the partnership debts
When LLPs were first introduced they were seen as providing a less formal business structure than limited companies. Since 2001, the administration of limited companies has become more simple so LLPs now offer few if any benefits. They are still used in certain professional fields such as doctors surgeries or firms of solicitors. Outside these areas, I would advise against LLPs.
LLPs cannot be not-for-profit organisations. If you intend to operate as such, a limited company would be required.
Partners do not have to be “people”; for example they can be limited companies. Until 2017 there were tax advantages in partners being limited companies but HMRC has effectively put a stop to this.
HOW CAN ASTON BLACK HELP?
- Help you minimise your tax bill. We will make sure you are claiming all legitimate expenses and allowances.
- Calculate tax correctly. Since HMRC can impose penalties for incorrect returns, we will make sure you are avoiding mistakes.
- Remind you when the partnership and partners’ returns are due.
- Act as a liaison between the partnership and HMRC to ensure you are being treated fairly.
- Create business plans to help you grow.
Get in touch for a free consultation on how we can support your business.