Starting Up in Business: Partnership Vs Limited Liability Partnership (LLP)
If you have decided that a working on your own is too much of a risk, then a partnership may be the way to go. There are two methods to go about this. There is the ordinary partnership and there is Limited Liability Partnership (LLP). This article will deal with these in some detail and give you the pros and cons of each and what it means legally and financially for your business. If you form a partnership, then you and your partner will share profits (and risks) as well as any management problems. Having a partnership means that there is potentially more money to invest in the business meaning that there is a more solid financial footing which is vital for a new company.
An ordinary partnership means that you and your partner are both personally responsible for any business debts which may accrue. This means that there is so much to lose, even your home may be under threat if loans are not repaid. If one of the partners refuses to (or cannot) pay, then the remaining one is liable for all the payments. It is important to remember that any of the partners can make unilateral business decisions without the consent or knowledge of the other. Therefore, a partnership agreement is highly recommended. It is like a business pre-nup helping to set out how the business will be run and how any profits (and losses) will be split between the two of you. This should help protect against any disagreements in the future which would jeopardise the efficient running of the business.
In the case of an Limited Liability Partnership (LLP), a partnership is formed but the partners are not personally responsible for business debts. The amount that they are liable for is the amount of money invested in the business, any assets that the company has as well as any guarantees made by them (and recorded) that they will help raise finance should the business need it. The sharing of management responsibilities are the same as a traditional partnership but forming an LLP is more complex, costly and requires more in terms of what is needed. In the United Kingdom, setting up an LLP means registering with Companies House (http://www.companieshouse.gov.uk/) and paying a small fee of around £20 (around $35). Registering an LLP means that you have to make your financial information public and you can do this by submitting your annual returns to Companies House. Furthermore, LLPs are legally obliged to have their accounts audited but those earning less than a certain amount (normally £5.6m and balance sheet of around £3m or less). Again, it is advisable to have a Partnership Agreement to avoid conflict.
I hope that this helps you budding entrepreneurs and best of luck with your endeavours. Take care and God bless readers...