Being on your own in the world of business can be overwhelming. Having a business partner can help your business succeed - a successful business partnership is a great platform to share knowledge as well as the responsibility for eg the business operations and financial management.
Partnership business - how does having a business partner work?
A partnership business is defined by a partnership that makes multiple people owners of a business. This agreement can include more than two people and distribute shares both equally or not equally between the named partners. This means you share all aspects of the business structure, including profit, losses, and any liabilities the company has. Each of the business partners has to pay tax on their share of the profit. A business partner does not have to be a person - eg a limited company can own a share of a business.
There are a few types of (small) business partnership. Which one suits your own partnership agreement for your company best depends on a number of circumstances:
A general partnership is the most straightforward business relationship, with partners sharing the liabilities and the responsibilities for the daily running of their company.
Limited partnerships are based on the same concept as a general partnership, but with an additional partner in the (new) business who has less responsibility. They are characterized by having at least one general and one limited partner who cannot be the same person. While general partners are liable for business debt, manage and control the business, and are able to make binding decisions, limited partners can not manage the business. They have to make a capital contribution when the business is started, which they cannot retract, and are only liable for debt up to this amount.
Limited liability partnership
An LLP is constituted by multiple partners that are sharing profits but not liable for any debts the business cannot pay. This model needs at least two designated members. The members' role in the business can include profit distribution and individual responsibilities. They are needed to finalize business decisions in the partnership.
What are the perks of business partnerships?
A partnership agreement is similar to a sole trader company, but it involves more than one person. This means you can get up and running fast, with none of the additional administrative hassles that go along with starting a limited company or forming a more complicated business arrangement. A successful partnership gives you the opportunity to focus on your own strengths. If you have solid experience in financial planning, but not a lot of experience on the operational side of businesses, your remaining partners could fill in those blanks in your skillset.
The admin of a business partnership is significantly less than a limited company. The responsibility of paying tax lies with each individual partner, any concerns on the partnership property can be shared amongst the partners and in a limited partnership, investors can support a business without being heavily involved.
Disadvantages of partnership business agreements
As a general partnership, you will have no involvement with Companies House. This means that your business may seem harder to gauge in terms of financial transparency. If one partner leaves, your partnership has to be dissolved. Both you and other investors then have to accept this, even if you oppose it. General partners in a limited partnership will also have greater responsibilities and increased admin.