Whether establishing an LLP or setting up a traditional form of partnership, it is important to set out the framework of the relationship between partners.
Limited Liability Partnerships (LLPs)
LLPs are separate legal entities that can be set up to hold the business carried on by a body of people. The tax treatment of individual partners will in practice be very similar to those operating traditional partnerships but you should always check with your tax advisor who can advise on your individual circumstances. The main distinction is that, whilst you will still be liable for you own mistakes, you will not be at risk for those of your fellow partners. Your personal assets will also be protected from the liabilities of the LLP, your exposure being limited to any capital you have invested in the business.
Traditional partnerships arise through the operation of the Partnership Act 1890 where two or more persons carry on a business in common with a view to profit. They can therefore arise through circumstance rather than design. There is no distinction in law between the assets of the business and those of individual partners so, if a liability arises, the assets of each individual partner are potentially at risk. The relationship between the parties, in the absence of agreement, will be governed by the Partnership Act 1890. This may not suit if, for example, the partners are contributing varying amounts into the business and, ideally, the partners should document their relationship into a partnership agreement which deals with their specific requirements.
Either way, it will be important to document the intended relationship between the parties. Click here for more information about
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