Establishing a Business Partnership
Just as for the sole trader the only requirements are:
1. Show clearly the names and address of your business on all stationery.
2. Be sure there are no objections to your chosen business name.
3. Check the current registration threshold with your local VAT office.
Partnership can lead to problems and here's why:
1. Friendship is the most common reason for going into a business partnership - but is your friend a good business person?
2. Personality conflicts might damage the business.
3. Outside influences such as husbands/wives may demonstrate personal likes and dislikes.
4. There might be dishonesty or irresponsibility on the part of one partner or the other.
5. You might have conflicting goals.
6. The balance of work and duties might not be fairly distributed.
7. There might be a lack of meaningful communication.
8. Bankruptcy of a partner does not make you liable for their debt, but it can cause you serious financial problems if you try to purchase the share of the business that is in the hands of the receiver or the creditors.
The Partnership Act
1. Partners must share profit and loss at an agreed percentage level.
2. Partners must share capital investment at an agreed percentage level.
3. There will be no interest paid on capital introduced by any partner, unless it is paid at an agreed percentage level.
4. Partners must have a say in the running of the business at an agreed percentage level.
5. Partners cannot draw a salary (salary can be drawn from their capital account, e.g. with accountants' and solicitors' practices).
6. Time off and the frequency of holidays should be determined and laid down in advance.
7. All partners have voting rights.
This is by no means a complete list. Ask your solicitor for a copy of a Deed of Partnership. You may wish to alter the clauses which you are quite entitled to alter. Any contract should cover the following points:
1. Voting rights and policy decisions.
2. Profit sharing, responsibilities and duration.
3. Withdrawing capital.
4. Time off.
5. Accounting system.
Limited Partnership
Known affectionately as a sleeping partner, they can play no active part in the management of the business and they are excluded from writing cheques on the business account or signing contracts. By registering a limited partnership, sleeping partners can protect themselves against the debt or obligations of their partners.
Partnership Selection
Trust, and the ability to work in harmony, are the main ingredients necessary for a successful partnership. Search your motives: are you really the type of person who is capable of listening to another person's point of view, or are you a control freak? Partnership is almost like marriage; be sure to take lots of time in choosing your partner, because divorce and partnership break up are not only expensive but emotionally exhausting as well.
Advantages
1. No audit required.
2. Trading information does not need to be made public.
3. You pay tax on a self-employed basis (Schedule D).
Disadvantages
1. You and your partners are jointly and personally liable for all of the business debts.
2. Partnerships are generally dissolved on the death of a partner.
3. Partnership contracts are expensive.
4. You will have limited borrowing facilities (often dependent on the individual partners' financial position).
