Setting up a new business is an exciting time. If you are launching your new venture with one or more colleagues, it is imperative to decide how you are going to structure it legally. One popular option is that of a partnership business, of which there are three types in the UK:
- ordinary partnerships;
- limited partnerships; and
- limited liability partnerships (LLPs).
Tom Bodkin, a Solicitor in the corporate and commercial team with Borneo Martell Turner Coulston outlines the pros and cons of each type of partnership. There are several commonalities between the three types of partnership, for example the partners of each will share the risks, costs, and responsibilities.
Which partnership type is best for me?
The most popular form of partnership in the UK is an ‘ordinary partnership’. Each partner acts on behalf of the other partners when negotiating with outside parties and all partners owe each other a fiduciary duty, as laid out by the Partnership Act 1890.
Pros: Since they are not incorporated, ordinary partnerships lack the formality of a limited company and tend to be easier and cheaper to start up. Also, accounts do not need to be made publicly available.
Cons: All partners are jointly and severally liable for any debts and obligations of the partnership as a whole.
Limited liability partnership (LLP)
Governed by the Limited Liability Partnerships Act 2000, LLPs are a mixture of an ordinary partnership structure and a private limited company.
Pros: Members are not personally liable for any debts incurred by the partnership and unlike an ordinary partnership, fiduciary duties are usually owed to the LLP, not other members.
Cons: running an LLP involves onerousduties, similar to running an incorporated company such as annual filings and disclosing income.
Governed by the Limited Partnerships Act 1907, limited partnerships were popular in the 1980s, but waned in popularity when they became more heavily regulated.
Pros: they have informal articles of association and can therefore be set up relatively quickly.
Cons: a limited partnership must be registered with Companies House and a number of relevant business permits and licences must be obtained, which can be costly.
How we can help
Whatever partnership you opt for, it is important to have a partnership or an LLP agreement in place. Setting this up can be complicated, so it is highly recommended that you consult a specialist Solicitor before you embark on your new venture. For further information, please contact Tom Bodkin at Borneo Martell Turner Coulston on 01604 622101 or email [email protected]