What are the key features of a partnership?
The key features of a partnership are (subject to any variations set out in a partnership agreement between the partners):
• Share of risk and rewards – all individuals share the risks and rewards of the business.
• Share of profits – each partner is entitled to share the net profits of the business. A contract need not provide for equal shares. It may depend upon how much the partner has invested.
• Liability, without limit – partners are jointly and severally responsible for all the debts and obligations of the business without any limit, including loss and damages arising from wrongful acts or omissions of their fellow partners and potential liability to third parties.
• Decision making – partners have the right to make the decisions that affect the business or the business assets.
• Share of ownership – all individuals share the ownership of the assets of the business, although they may have agreed that the firm will use an asset which belongs to one of the partners individually.
• Flexibility – the partnership structure is flexible, with complete freedom to agree how the business is managed and financed.
• Privacy – the financial and constitutional matters of the partnership are entirely private. Disclosure is governed by the partners' interests.
• Taxation – as partners are deemed to be self-employed there are no employer's NICs on partners' profits, and no mismatch between corporation tax and tax credits on dividends. As a partner, you will be responsible for your own tax and National Insurance and will therefore be required to register with HMRC as soon as possible after starting a new business. More information is available on HMRC’s website, which should be consulted for the most up to date information on any tax issues.
• Membership Changes – no need for cumbersome arrangements for shares to change hands without unavoidable tax consequences whenever there is a change in membership.