Embarking on a new business venture is exciting, especially if you’ve decided to start with a friend or a group of experienced individuals. While this process can feel extremely overwhelming at times, you’ll never be in it alone!
Your first major business decision will be choosing which business structure to go for. If you don’t fancy the stress of setting up a limited company (yet), a business partnership may be an appealing choice. This is down to the fact it’s quick, simple, and easy to set up.
But how do you register a business partnership? The good news is it’s fairly straightforward – but like any business structure, it comes with its pros and cons. We’ll look at how you register a business partnership and what it means to be in one.
What is a business partnership?
A business partnership is where one or more people run a business and share equal responsibility for it and its profits. Your business partner can be another person, another partnership, or even a limited company because they’re classed as a ‘legal entity.’
Everything in your business is shared, with all members having ‘unlimited liability.’ This means all partners are personally liable for things like the company’s taxation or any debt incurred.
As the phrase often goes, ‘they are the business’. In a partnership, the partners are the business too – and if one of them leaves then there’s no business. Unless a written agreement is made, the partnership will be dissolved upon the resignation of one of the partners.
While a business partnership is easy to register, unlimited liability can be worrying if things were to go wrong. If this is a concern to you or any of your partners, you can discuss the route of a limited liability partnership.
What is a limited liability partnership?
A limited liability partnership is similar to a business partnership, however, how ‘liable’ the partners are will depend on the amount they’ve invested in the business. This is because the partners and the business are separate, unlike in a normal partnership where they are one single entity.
‘Limited’ liability is ideal in high-risk industries such as accounting, construction, and law. Remember though, you’ll need to register with Companies House – so it might not be as simple to get started.
What are the main differences between a business partnership and a limited liability partnership?
The premise of partners coming together and using their strengths and skills to run a successful business is likely to be at the heart of both business structures.
This means the partners of a business partnership have ‘unlimited’ liability when it comes to any debt incurred by the business, while partners in an LLP are ‘limited’ by how much they’ve invested.
It’s easier to sign up as a business partnership (and a lot more private), because you don’t need to register with Companies House, unlike a limited liability partnership. So, if you’re in an LLP, there are some documents that competitors, clients, and the general public can access. It isn’t all doom and gloom for LLP’s though, as they’re more likely to attract investors and clients than a typical business partnership.
Both businesses can have another person, partnership, or limited company as their partner, and both run the risk of dissolving if a member leaves. Always speak to an accountant to understand the differences between the two, so you can decide what works best for your partnership.
How do I register a business partnership?
Setting up a business partnership is super simple! Here are the steps you need to follow:
- Firstly, you need to choose a name for your business
- Then, decide which of you will be the ‘nominated partner’ (we discuss what this is next)
- Once you’ve done that, it’s time to register with HMRC
Setting up a limited liability company is a little more complex, and involves:
- Choosing a name for your business
- Having a registered address (which will be publicly available)
- Deciding on 2 ‘designated members’
- Creating an LLP agreement that states clearly how it’ll be run
- Registering the LLP with Companies House
What are the responsibilities involved in a business partnership?
Going into a business partnership means responsibilities are split evenly, so it’s a team effort, but you will need to decide which one of you is the ‘nominated partner’.
The ‘nominated partner’ basically makes sure everything runs smoothly. They do this by managing tax returns, keeping accurate records, and making sure the partnership is following all necessary rules and regulations.
Other responsibilities include (but may not always apply to your business):
- Managing employees
- Client pitching
- Tracking the businesses finances
- Ensuring profits are split equally (unless stated otherwise in your partnership agreement)
A limited liability partnership is slightly different, and the way that responsibilities are shared is up to its members – not everything is 100% equal. However, you’d need to appoint two ‘designated members’, similar to a ‘nominated partner’, who look after filing account information and tax.
How do I do my taxes in a business partnership?
It’s good to note that when it comes to partnerships, the taxes are paid by the individual partners and not by the partnership itself, even though the partnership must still submit a tax return.
The profits earned will be distributed amongst each partner depending on the agreement they have, and each individual partner will then submit a Self Assessment tax return according to their share of the profits.
If you’re the nominated partner, you’ll also take care of filing your Partnership tax return, known as an SA800 Partnership Tax Return. This is to let HMRC know how much was made and how the profits were split within the partnership. You’re basically keeping HMRC in the loop but won’t be paying any taxes from the partnership itself. Both the Self Assessment and SA800 tax returns are due at the same time.
It’s a bit different if you’re in a limited liability partnership, which will include things such as creating sets of accounts, so make sure you chat with your accountant about the differences.
Starting a partnership is an exciting adventure, if you’ve become the nominated partner of the business, you’ll need good bookkeeping processes! Why not take Pandle for a spin? Sign up for your free account here.