A partnership is another type of business structure where two or more individuals (partners) pool resources, money and skills. They share profit and loss in accordance with the terms outlined in their Partnership Deed (i.e. partnership agreement). Generally all partners pay income tax on their share of the profits. There are 3 main types of partnerships:
1) Ordinary Partnership
2) Limited Partnership
3) Limited Liability Partnership
An ordinary partnership is the traditional partnership where the partners are personally liable for the business’s debts. All the partners are jointly liable for the actions of another partner e.g. if one partner takes on debt, all the other partners are jointly & severally liable for the repayment of the debt. Ordinary Partnerships need to be registered with HMRC for tax purposes. The partners need to appoint a ‘Nominated Partner’ that will to responsible for managing the partnership’s tax returns and record keeping. In addition, all the partners are required to register with HMRC to do their own tax returns. For more information click on Registering an Ordinary Partnership. Contact us for more information on how Jaki & Son Ltd can assist you with registering and filing partnership returns for your business.
Limited Partnership (LP)
A Limited Partnership is an incorporated partnership structure (similar to a LLP). This means that the ownership structure offers some of the owners/partners limited personal liability for business debts. Unlike ordinary partnerships, limited partnerships must have:
a) At least one General Partner. General partners make business decisions and are personally responsible for business debts.
b) At least one Limited Partner. A Limited partner is one that invests money in the business but has minimal control over daily business decisions and operations. Limited partners are not personally liable for business debts (i.e. only liable to the extent of their original contribution).
Limited Partnerships and LLPs are both incorporated through Companies House. This means that they are required to file accounts with Companies House. All partnerships are treated as ordinary partnerships for tax purposes i.e. all the partners (including the partnership) need to be registered for self-assessment. However, limited partners do not have to pay self-employment taxes because they are not active in the business i.e. their share of partnership income is not considered ‘earned income’ for purposes of the self-employment tax. For more information click on Registering a Limited Partnership. Contact us for more information on how Jaki & Son Ltd can assist you with registering and filing limited partnership returns for your business.
Limited Liability Partnership (LLP)
The main difference between LLPs and LPs is that all the owners/partners of a Limited Liability Partnership have limited personal liability for business debts. The LLP itself as an incorporated legal entity is responsible for the debts. The LLP must have at least designated members at all times. These members have more responsibilities than ordinary members (who also have responsibilities as would be outlined in the LLP Partnership Deed). For more information click on Registering LLP. Contact us for more information on how Jaki & Son Ltd can assist you with registering and filing Limited Liability Partnership returns for your business.