Track 44

Track 44.

Thank you, Dr Korpis.

The next form of business structure that I would like to discuss is the partnership.

There are two kinds of partnership, a simple partnership and a limited liability partnership, or LLP.

I’ll talk about each of these in turn.

Forming a simple partnership is straightforward, like becoming a sole trader, except that you have to agree to work with someone else.

A partnership could be between a husband and wife, or two members of the same family or close friends.

For example, a couple might run a catering business, or two car mechanics might leave employed work to set up a partnership together repairing cars.

One obvious advantage of this is that if one partner is sick or on holiday, the other partner can carry on the business, and another is that it can be easier for a partnership to borrow money from a bank than it can for a sole trader.

Of course, partners usually have an informal agreement to work together, but it’s always better to have a formal arrangement to avoid disagreements.

As with sole traders, each partner must be registered with the tax office as self-employed and must send in a tax return once a year.

In addition, as the partnership is unlimited, all members are responsible for debt, so you and your partners may lose your personal possessions to pay debts if the business fails.

The other structure for a partnership is the limited liability partnership, or LLP.

This is similar to a simple partnership as the partners share the income and expenses and also have to pay their own taxes to the tax office, but there are important differences.

On the one hand, sole traders and simple partnerships don’t have to legally register their businesses.

On the other hand, LLPs have to be legally registered with Companies House.

This means that at least two of the members are legally responsible for the partnership.

They have to make sure that they send accounts to Companies House, as well as to the tax office.

They also need to send in an annual return, which is a document showing the name, address and members of the partnership and any changes.

If they don’t do this, they may go to prison, so it’s important to understand exactly what setting up an LLP means.

So why should partners enter into a limited liability partnership?

Usually, an LLP suits certain types of professionals who provide services, such as accountants, lawyers, consultants and financial service providers.

Another reason may be that partners want to do business with larger organisations who would prefer to give contracts to a registered company or partnership.

In any event, an LLP offers the flexibility of being in a simple partnership, but also gives the partners protection so that they lose only the money that they have put into the partnership if it fails.

However, if the partners earn a lot of money, they will still pay more tax than the owner of a limited liability company.