Becoming business partners can seem daunting at first, however, the fear behind it is often a result of a stigma surrounding the word “partners”. What exactly does entering a business partnership mean for individuals involved and how will it affect each business?
What is a business partnership UK?
A partnership is the agreement to share the responsibilities for a business. This is generally referred to as the risks, the profits, and the losses. Partnerships share an equal amount of the business unless there is an agreement otherwise.
Business partners aren’t alone in their responsibilities. This means that any debt is split between them. This doesn’t simply stop if one leaves the partnership either, i.e. a partner can’t just leave to escape their side of the responsibility.
There is also the benefit of being partnered with an individual whom you can assume is a professional in their field. It’s important to think about who your partner is first to ensure your business is being run by someone competent. This is something only limited companies often get the benefit of having, as a direct result of having a board of directors/shareholders.
Put simply, you gain half as much as you lose. This applies regardless of the share of work done between the partnership. If this is the case, it might be appropriate to liquidate the partnership and its assets. This, in turn, will almost certainly destroy any relations you had with the individual beforehand. It won’t solve the issue either, as they legally own 50% of the shares. As a result, assets are dissolved and the business is likely gone.
Furthermore, things can’t always go your way in a partnership. As all partners share the risk, one person cannot be responsible for decision-making. Due to this, you won’t always be able to make the business choices you want.
What is a limited liability partnership?
A limited liability partnership (LLP) is a business entity run by partners that is separate from the partners. They are made to pull the liability from its owners onto the business entity.
Note that a separate business structure for LLC does not exist in the UK, and as such is no different from a limited company. The business is legally independent of its owners, meaning that even if the partnership dissolves, it will continue. In the event that all owners leave at once, a new director or set of directors would be elected. If this fails, the company would be struck off.
Partnerships certainly come with risk, and the results of a partnership should be considered heavily before entering into one. If you want to have limited liability or shares-based ownership, consider setting up a limited company. Finally, always be certain that you can work effectively in that partnership for many years to come.