Partnerships are made up of individuals who are in business together as equals (i.e. they all own the business as partners, though can have different ‘shares’ of the ownership). All profits and losses of a Partnership are owed equally by the Partners, in much the same way as the Sole Trader structure.
An advantage of Partnerships is that there are few formalities required to set it up or run it. Partnerships and the relationship between its partners are governed by the Partnership Act 1890, but we would recommend that you should have a Partnership Agreement in place too.
The burdens of reporting to Companies House or filing public accounts are therefore not something that Partnerships need to worry about. However, a disadvantage of a Partnership is that partners are liable for the debts of the Partnership. This liability, as with Sole Traders, is unlimited, meaning that the partners could lose their homes and possessions, or even be made bankrupt if the Partnership fails to meet its liabilities.
Other disadvantages of a Partnership are that it can be difficult to raise capital, as it cannot create charges or issue debentures in its own right (only in the names of the Partners individually). Also, when a Partner leaves, remaining Partners may have to consider how to raise the capital to buy out the departing Partner, which can have implications on development and growth of the Partnership as a whole.
Whilst Partnerships lack complexity in commencing or managing as a business, it may not be the most appropriate structure for your business because of limitations on borrowing money and the possible implications on you personally both for the debts of the business and taking money out of the business when you decide to leave or sell up.
Talk to a member of our Corporate and Commercial team about whether a Partnership is the best legal structure for your business.
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