What is a business partnership?
This is a question that myriads of new entrepreneurs in the UK and around the globe as well ask as they are breaking into the business world. A business partnership is merely a form of cord that links two people or more in a business setting. In a business partnership, these two or more parties own the business together and share the losses as well as the profits of the business.
In most cases, the parties involved in the business partnership usually are self-employed people, but there are instances where one of the partnership members could be a limited company. In addition to the above, it is crucial to note that the individual parties in a business partnership that is not limited are held legally responsible/liable for downsides that are incurred during the business’ operations, e.g., debts.
The other common types of businesses in the UK include corporations, sole proprietorships, and Limited Liability Companies. What’s different about business partnerships as compared to these other forms of businesses is mainly the operational structure under which they operate. In business partnerships, every individual has to contribute to the functioning of the business in terms of money and ideas, among other things.
Some of the Different Types of Partnerships
The rights of management, the framework of sharing profits and personal liabilities is all dependent on the form of business partnership that is adopted. With this information in mind, it is crucial for us to note that the three primary forms of business partnerships include: limited partnerships, general partnerships, and limited liability partnerships.
Let’s take a look at what each one of them entails.
A general partnership is a form of business partnership that is composed of two or more business partners tackling the business’ main objectives. These partners are referred to as “general partners,” and they share similar responsibilities and right when it comes to the management of their business. In addition to this, any of the business’ general partners have the power to bind the business partnership into legal ties and obligations, even without the consent of the other general partners.
Also, every individual general partner is fully responsible for the partnership business’ obligations and debts. The gravity of the consequences that can follow such levels of personal liability could be quite discouraging, but there is a silver lining to it all. General partnerships come with tax advantages. The profits that are acquired in this business partnerships aren’t taxed straight to the partnership. Instead, they are passed through to the business’ partners, who in turn, add these profits to their tax returns at lower rates.
Limited partnerships are a form of business partnerships that allow all the partners in question to limit or restrict their liabilities to the investment amounts they made in the business. It`s good to note that this type of limitation favors not all partners because they are required to have a minimum of one participant taking up the mandate of being a general partner.
By so doing, this partner is exposed to bearing the responsibility of full liability to the partnership business’ obligations and debts. The advantages of the position of general manager in a limited partnership are brought to life by the prospect of retaining the rights to control the reigns of the business. On the other hand, the rest of this business partnership’s co-owners aren’t involved in making management decisions. However, both the limited and general partners are allowed to share equally in the profits made from the business.
Limited Liability Partnerships (LLP)
In limited liability partnerships, the tax benefits that had been mentioned earlier for general partnership business forms are retained. On top of this advantage, they also protect against personal liability to this business type’s business partners. The partners in limited liability partnerships aren’t held accountable for any wrong actions of their fellow partners or even the business’ obligations and debts. Because this type of business partnership has altered/modified some of the initial aspects of the original partnerships, there is a chance that tax authorities could subject LLPs to tax rules not meant for partnerships.
Setting Up a Business Partnership
As we had mentioned earlier on, partnership businesses require the partners in question to share the business responsibilities equally among themselves. Some of these responsibilities include:
- The bills for the items such as equipment and stock that have been purchased in the business.
- All the losses that have been incurred by the business.
So, the question arises: What should you do to get your business partnership up and running? The steps below will give you a framework that you can use to accomplish this easily.
When setting up your business partnership, you should:
- First, choose a suitable business name.
- Select a nominated business partner.
- Register the business partnership with the relevant authorities such as HM Revenue and Customs (HMRC).
That’s it! The process is as simple as it has been broken down above. The only thing worth noting is that this nominated partner is tasked with handling the business partnership’s tax returns as well as maintaining the business records.
In these present times, starting a successful business can be regarded as one of the sure-fire ways of keeping aloof in the current harsh economic state. However, you can’t just start any business without a strategy at hand and expect it to succeed. That’s far from how the business world works! For you to succeed in your business endeavors, one of the best strategies you can use is coming up with a partnership business.
As we have seen above, there are different types of such businesses, and each of them has distinct advantages especially in terms of the operational benefits you will reap. From Limited Liability Partnerships to general partnerships, there is an endless list of achievements waiting for you to explore in the sector of business partnerships.
We hope this article has assisted you in understanding the whole concept of partnership businesses and how you can start one.