All partnerships consist of two or more partners. A partner can be an individual or another business and unless the partnership agreement states otherwise the profits are shared equally between all partners. Each partner (individual) must register as self-employed with HM Revenue & Customs and complete an annual self-assessment tax return in order to pay income tax and Class 4 National Insurance contributions. A nominated partner must also send HMRC a partnership return.
There are three types of partnerships:
· 'ordinary' partnerships
This is the most common type of partnership. Here partners are jointly liable for any debts and so are equally responsible for paying them off. Creditors can claim partners’ personal assets to pay off any debts - even those caused by other partners.
· limited liability partnerships (LLPs)
All LLPs must register, file accounts and submit an annual return with Companies House. They must have a minimum of two designated members - the law places extra responsibilities on them. 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. An LLP is a halfway house between an ordinary partnership and a private limited company and the partners’ shares of profit can be adjusted from year to year.
· limited partnerships
This is the least common of the three. A limited partnership must register with Companies House and is made up of one or more general partners and one or more limited partners. General partners are jointly liable for any debts owed by the partnership and so are equally responsible for paying off the whole debt. A limited partner's liability is limited to the amount of money they have invested in the business.
Please feel free to call or email us to discuss your business set up further.