If you and one or more people want to create a company but don’t want to go down the route of becoming a limited company, then the type of company you will want to form is called a partnership.There are various types of partnership that you can register for and this will depend on the exact details of the format used when forming your partnership. Here we look at what these partnership formation types are and how you can set one up to suit your needs.
The basic business partnership
The basic business partnership formation involves two or more people who want to create a company together. It is a simple business structure that connects the individuals but doesn’t give the company any legal identity in its own right in the way that a limited company does. Business partners in a basic partnership are classed as self-employed and are registered with HMRC as such.When the company is formed, it should be registered with HMRC. A company name will need to be chosen and one of the partners will need to be the ‘nominated partner’; this is the person who is responsible for submitting tax returns and for keeping the business records. Basic partnerships don’t need to register with Companies House nor do they have the requirements in terms of administrative and accounting that limited companies have.If anyone leaves the partnership, dies, or the partnership goes bankrupt, then the partnership is dissolved as it has no legal status in its own right. The major downside of a basic partnership is that the partners will be liable for debts run up in the company name and will have to pay these costs in the event that the partnership collapses. It is also recommended that a partnership agreement is put in place before the company is created, dealing with how the company will be run, how much each partner has invested, how they will work together and what happens if someone leaves the company. Any issues that may arise are covered under the Partnership Act 1890.
Partnership income and tax
When you register as a basic partnership, income from the business is reported alongside the individual’s income from other ventures. This means each partner needs to submit an annual self-assessment form to HMRC and keep accurate records of all business transactions and income.The partnership itself will also need to submit an annual self-assessment form along with one for each partner. Tax and national insurance will be due on any profits from the partnership.
Limited liability partnerships
A limited liability partnership, or LLP as it is otherwise known, is a type of partnership where some or all of the partners have a limited liability. This means that individual members can have lower liabilities for any debts accrued by the business. Forming an LLP does require more work and legal paperwork than a basic partnership and this is why Your Virtual Office offer a fully comprehensive company formation service for limited liability partnerships.With an LLP, the business itself is classed as a single entity and the company is liable for any debts run up during its operation. This means that the individual partners are protected and will not be personally held liable for paying back all the company debts as they would be within a standard partnership agreement. This type of partnership is highly recommended for profit making businesses.An LLP needs to have at least two members and their rights and responsibilities as partners are laid out in a document called a ‘Deed of Partnership’. The ‘designated member’ is the person chosen to be responsible for maintaining all necessary and statutory communication with Companies House as well as preparing and submitting the company accounts and being the main point of contact for all official business regarding the company.The LLP company formation service we offer for this type of business includes every step of the formations process and begins with providing the name of the company to start the process. After registration, we then take the name of the members and draw up a Partnership Agreement to protect everyone involved. We have blank agreements available to complete with relevant information.Administrative details such as name and address of members, details of the amount of capital each partner will bring to the business as well as their roles and responsibilities will all be included in the documents as well as the details of what would happen to the partnership if a member chooses to leaves the business, retires or passes away.Most of this process can be very easily carried out via our website where you can pay for the service and provide us with the necessary information required to officially form your partnership. We can then provide you with the relevant paperwork to confirm the company’s formation for your own records.We are here to help you every step of the way and are more than happy to advise and offer our expert guidance should you be unsure of any aspect of forming your LLP. Please do not hesitate to contact us if you need our help.