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Top 5 Things To Know About Business Partnerships

A man and a woman shaking hands

Not all business owners want to go it alone, so they set up a business partnership with another person or entity.

While it’s common for two people to be involved in the partnership, it can be possible to have more. Each person will share the business's risks, costs and responsibilities.

While it sounds simple enough to set up, as long as all parties agree to set up the business, it can be deceptively complicated. So let’s look at the top 5 things you need to know about business partnerships.

1. Is there more than one type of partnership?

In the UK, there are typically 3 types of partnerships that business owners can choose from:

  1. ‘Ordinary’ Partnerships - a similar set-up to a sole proprietorship, the business has no legal distinction from the individuals. One thing to note here is that if one partner resigns, goes bankrupt or dies, the partnership will be dissolved, however, the business itself can keep running.
  2. Limited Liability Partnerships (LLPs) - a similar set-up to limited companies. The company has to be registered with Companies House, and they need to send in an annual return and file annual accounts.
  3. Limited Partnerships - this is a mixture of ordinary partners and limited partners. They have to register with Companies House, although they don’t generally have to make an annual return or file annual accounts.

The type of partnership you set up will depend on the needs of the business and whether you want to have limited liability.

2. Can the partnership have sleeping partners?

If you need to attract investment into your partnership, a sleeping partner could be the way to go for you.

Sleeping partners are investors who put money into the business but have no say in the company's day-to-day running. Their main and only concern is making money from the business investment. However, the sleeping partner can lose money on their investment.

But as far as the partnership is concerned, this is an ideal solution for gaining investment. The business isn’t affected by the partnership with the sleeping partner.

3. Who has the final say in business decisions?

The partnership agreement you have in place will dictate who has the final say in your decisions. It could be the case that you need to make a unanimous decision, or it could be that you need to have a majority (if you have more than 2 of you involved in the business).

It could be the case that you have an unequal partnership, where one partner has, for example, 60% voting rights and the other has 40%. In that case, the partner with the 60% would have the final say in the decision. But as already mentioned, this would be outlined in your partnership agreement, so read it carefully.

4. Why should I set up a partnership?

You might be considering whether you should set up the business on your own or with other partners. The good thing about having others involved in the company is that you can pool your resources and expertise. By pooling your expertise, you can ensure you have skills that complement each other rather than relying on only one person’s knowledge.

You can also share tasks, which can lead to a better work-life balance.

5. What happens if I want to leave the partnership?

A partnership can be dissolved simply by having one partner give notice to the others; any remaining partners can then reform the partnership if they so wish. However, there may be negative tax implications to doing this.

If you don’t have a partnership agreement in place, the partnership will be automatically dissolved on the death, bankruptcy or resignation of one of the partners. It can also be dissolved if the purpose of the partnership is illegal.

If the partnership is registered as an LLP, it’s possible to continue the partnership if one partner leaves.

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