Partnerships
The Corporate team advises on the setting up of partnerships as well as managing partnership disputes, mergers, fundraising and dissolution. We deal with general partnerships, limited partnerships and LLPs.
Partnerships are, in many ways, a more flexible business entity than a Limited Company. There are less regulatory requirements and the partnership structure will not generally incur tax on profits before they are distributed to the partners (unlike Corporation Tax levied on Limited Companies). Careful consideration should be given, however, to the tax implication on drawings by the partners from the partnership compared with dividends paid to shareholders and we recommend that anyone weighing up the pros and cons of various business structures seeks appropriate tax advice before reaching a decision.
Partnerships are governed by the Partnership Act 1890. In the absence of any agreement between the partners, the provision in the Partnership Act will govern how the partnership is run, including how profits and liabilities will be split between the partners. Perhaps even more importantly, if a partnership agreement is not in place and one of the partners dies the partnership will automatically dissolve in accordance with the Partnership Act. Therefore, the importance of having a partnership agreement in place is paramount. A partnership agreement will allow the partners to govern how profits and liabilities will be attributed, as well as putting in place suitable mechanisms to deal with disagreements or disputes between the partners should they arise. In addition, and particularly relevant for larger business entities, a partnership agreement can cater for a variety of levels of partner. For example, an architectural business may have junior partners and senior partners with differing levels of responsibility and rights in the partnership that are specified in the partnership agreement.
Those wanting more protection than that afforded by a partnership, but not wanting to go as far as incorporating a Limited Company, may find the hybrid Limited Liability Partnership (or LLP) a good compromise which meets their needs. As the name suggests, the liability of the partners is limited in a similar manner to the limitation of liability of the shareholders in a limited company, but many of the flexible benefits afforded by a partnership are retained by an LLP.
If you would like further information on creating or managing partnerships or LLPs, please contact a member of our team
