POINTS TO CONSIDER
Forming a (General) Partnership might sound a great idea and in some cases it most certainly is, but partners being on the same page is essential.
By the nature of the partnership structure, owners necessarily share business profits, liabilities and the decision making. No matter how good relationship you have between partners it is wise to draw up a partnership agreement to avoid any dispute over matters whether they are small or vital.
If you decide to embark on a journey being in a Partnership the following advantages and disadvantages you might have to consider:
- Initial planning, set up funding is easier as there is more start-up capital sources available from members.
- As long as all partners agree a Partnership is easier to set up, manage and run than a limited company.
- Diverse set of skills, experience and abilities of members means they can form an effective team, react to market needs quicker, organize work efficiently and be able to concentrate only the part of work they are good at.
- Although decision making is shared which is a double edged sword, when partners are in agreement they can make a well informed, well thought over mutual decision.
- Staying with the decision making the downside of this is when partners clearly have different ideas how the Partnership should be run, and who would be responsible for what and what is exactly the best interest of the business. Agreeing on matters can take considerably longer time compared to Sole Traders which makes Partnerships less flexible.
- It is not evident that partners share business profits at the same ratio, on longer term this could lead to dispute between partners when one feels they deserve more.
- The most important fact about Partnerships is unlimited liability. Just as Sole Traders each partner is liable for any debt the Partnership runs up BUT this liability is not limited to their profit sharing ratio ergo partners are liable for each other’s actions!
- If a Partnership becomes a well-established, lucrative business the business structure might have to be changed due to disadvantageous taxation.
Some of the disadvantages can be off-set by choosing a different Partnership structure such as Limited Liability Partnerships.
Each member of the Partnership is treated as an individual Sole Trader so as such most of the obligations are the same.
Before registration you have to make sure that you have your NI number; you will work and live in the UK.
Depending on your circumstances (new/former sole trader, sent/not sent tax return before) each partner have to register for Self Assessment and Class 2 National Insurance. Unique Taxpayer Reference number is assigned upon registration for those who does not have one yet.
Your partnership must also be registered, when the nominated partner (or appointed agent) registers the partnership they will automatically register themselves for Self Assessment. The Partnership itself will get its own UTR.
Other types of Partnerships will need different forms to fill.
The easiest way is to register online which OptiAccounts would gladly help with.