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Here we explain the difference between a business partnership and a LLP.
In choosing the better option for you, it is worth bearing in mind that a partner does not have to be an actual person. A limited company is considered to be a ‘legal person’ and can also be a partner.
A business partnership is not a separate legal entity. As a result, you and your partners will be responsible for any losses your business makes and any loan, credit agreements or unpaid bills.
The business is usually regulated by a Partnership Agreement. This agreement sets out the rights and responsibilities of each partner, defines how the profit will be split, how key decisions are made and who will be the nominated partner.
The nominated partner is responsible for managing the partnership tax returns and keeping business records. All individual partners also need to send their own tax return.
You must register with HMRC as a business partnership and/or a partner by 5th October in your second tax year. For example, if your partnership started or you became a partner during 2020-21 tax year, you must register before 5th October 2021.
A business partnership carries less administrative burden than an LLP and the accounts are private. On the other hand, as well as any liabilities remaining with the partners, a business partnership cannot borrow money as an entity.
An LLP (Limited Liability Partnership) is a hybrid between a business partnership and a limited company. An LLP needs to be registered as a company at Companies House and is a legal entity in its own right.
The partners in an LLP are designated as members and are not personally liable for any debts incurred by the partnership. However, an LLP is tax transparent. In other words, it is does not pay Corporation Tax and the members are responsible for paying the tax on their share of the profits.
Your business name cannot be the same as, or too similar to, another registered name at Companies House (https://find-and-update.company-information.service.gov.uk/company-name-availability)
Your business must end in ‘Limited Liability Partnership’ or ‘LLP’ or the regional equivalents.
An LLP offers limited liability to the partners set at the amount of your capital contributions. It also carries a legal status which means it can trade in its own right. On the other hand, there are more filing requirements and some financial information will be in the public domain.