Types of partnership Ordinary Partnership and Limited Liability Partnership
A partnership is an arrangement where parties, known as partners or members, agree to cooperate to advance their mutual interests. It is the easiest way for two or more parties to establish and carry on a business together with a view of profit. The partners in a partnership may be individuals, businesses, interest-based organizations or combinations.
In a partnership, the partners share the risks, costs and responsibilities of doing business together.
Types of partnership:
- Ordinary (General) partnership set up by two or more parties who can be self-employed and/or limited companies and/or limited liability partnerships. An ordinary partnership is not a separate legal entity like a limited company for example. The fact that partnership does not have legal personality means that partners of the partnership do not have any protection and are fully liable for the debts of the partnership as a whole. Unlike a limited company, a partnership is not subject to income tax. Profits of a partnership are shared among its partners in accordance with their partnership agreement.
- Limited liability partnership (LLP) has legal personality and it is a corporate body which offers to its members limited liability. LLP is set up by two or more parties who can be self-employed and/or companies and/or limited liability partnerships. In a limited liability partnership the liability of the partners is limited to the amount of the money or the guarantee they invested in their business. LLP has to be incorporated with Companies House and has its own unique registration name and number and is a separate legal entity independent of its partners. A limited liability partnership is not subject to income tax. LLP’s profits are shared among its partners, who are liable for paying income tax on it. This type of structure is very popular among solicitors and accountants.