Partnerships
| CHOOSING THE BEST OWNERSHIP STRUCTURE FOR YOUR BUSINESS: PARTNERSHIPS One option is to start a business with a colleague or friend. You might each have different skills to bring to the enterprise. When you go into business with someone else, this is usually known as a 'partnership'. Each partner can own an equal share or some may have a larger proportion of the business than others. In a partnership, you are liable for the debts of the business in proportion to how much of it is yours. Unlike other business formats, partnerships (and sole traders) can start trading immediately, although certain types of businesses may need a licence to trade. If trading under a name other than that of the owners, you must display names of owners and an address, for each, at which documents can be served. After sole-traders, a partnership is the second most popular type of business and is commonly associated with professional services such as accountants, solicitors and doctors. It is also common in partnerships for each partner to specialise in a specific area of the business. For example, in an accountancy service, one partner may specialise in bookkeeping, while another may specialise in financial advice etc. You should be aware that as any decisions and actions are dependent on the agreement of the other partners, certain conflicts may arise from time to time. Such conflicts have led to partnerships failing and so it is important that some control be maintained by compiling a 'partnership agreement' prior to starting the business. Types of Partnerships: The General Partnership The General Partnership, as outlined above is subject to The Partnership Act, 1890. Full partnerships, as outlined above, have between two and twenty partners, but typically, the number of partners in a full partnership is between two and four inclusive. Another option could be an arrangement in which two or more individuals or other persons (such as a company and an individual) conduct a business as partners, whether officially or not. In terms of asset protection, general partnerships can be more problematic than sole proprietorships. Anything that one partner does can affect all the partners, because each partner in the general partnership is personally responsible for all obligations of the partnership deals. The Limited Partnership: A Limited Partnership is subject to The Limited Partnership Act, 1907. Limited partnerships are very rare today and account for less than 1% of all partnerships in the UK. A limited partnership is formed when one or more of the partners invests capital into the business but does not participate in running and managing the business. These partners therefore have limited liability as they can only lose the amount of money that they initially invested into the business. A Limited Partnership (LP) is an association of one or more general partners together with one or more limited partners conducting business for profit as co-owners. The most important feature of a LP is that the limited partner enjoys limited liability as long as s/he does not participate in the control of the partnership business. The general partners of the LP are the ones who are responsible for the obligations of the LP. | In a limited partnership, it is the general partner who remains liable for the debts and obligations of the partnership. For larger risk exposure, a company (corporation) may be formed to serve as the general partner. A corporate general partner is protected from direct attack by a judgment creditor because the ultimate liability for the debts and obligations rests with the shareholders. By spreading share ownership, individual exposure is considerably reduced. Even without a corporate general partner, risk can be spread by distribution of limited partnership shares. If a judgment creditor obtains a charging order against one partner, the order goes to that partner's share in distributions from the partnership, and not to the entire business.
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