If two or more people want to join forces but don't want to set up a limited company, a partnership offers a great alternative. This article discusses the different types of partnerships and outlines the benefits to help you decide the next step for your business.
What is a Business Partnership?
A business partnership is one of the most common business structures in the UK, alongside limited companies and sole traders. It's a type of business structure where two or more people share responsibility for managing and operating a business to increase its chances of success.
In a partnership, each partner contributes their resources, skills, or capital to the venture, and they share in the business's risks, profits, losses, and responsibilities.
Partners can be individuals, companies, other partnerships, or a combination of all three.
Types Of Business Partnerships Explained
There are three main types of business partnerships: general, limited, and limited liability, and it is essential to distinguish the differences between them.
General partnerships are the most common form of business partnership. In a general partnership, each partner is actively involved in the day-to-day operations and decision-making of the business and shares equal responsibility for the partnership's debts.
A limited partnership consists of two types of partners: general partners and limited partners. The general partner will be responsible for the day-to-day running of the business, holding full personal liability for the partnership's debts. In contrast, the limited partner isn't responsible for the company's management and will only receive their share of the profits once the general partner has received theirs (limited to the amount invested).
Limited liability Partnership
A limited liability partnership combines the flexibility of a general partnership with the limited liability of a limited company. In a limited liability partnership, each partner actively participates in the business's day-to-day operations; however, they are not personally liable for the LLP's debts and liabilities beyond their capital contribution and their personal assets are protected.
Read our in-depth guide here to learn how to form a business partnership.
What are the benefits of forming a business partnership?
A business partnership can yield several benefits that contribute to the success and growth of the venture. Some of the key advantages of forming a business partnership include:
It provides access to additional skills
The more partners, the more skills a business has. When two or more partners join forces, they combine their knowledge, skills, experience, and contacts to benefit the company and increase its chances of success.
It's easy to set up
Registering a partnership with HMRC is much more straightforward than registering a new company with Companies House. You can create a business partnership without going through the formation process to form a limited company.
Unlike a limited company where information is public, the affairs of a partnership can be kept entirely confidential.
It offers flexibility and support
The responsibility and workload can be divided between partners, meaning that the business won't suffer if one partner cannot work.
Greater borrowing capacity
A partnership has a greater borrowing capacity than a sole trader. More financial resources - When a business has more partners, more money is available to help fund the venture.
With more than 40 years of experience, Paramount Formations are on hand to provide additional information and guidance for all your business needs. Contact us using our contact form or call our friendly expert team on 0800 0198 698.