A Business Partnership can have unlimited or limited liability. A normal partnership has unlimited liability but a Limited Liability Partnership (LLP) has similar advantages to a Limited Company. As such it needs to be registered at Companies House.
Operating a business as an unlimited partnership is similar to operating as a sole trader from a legal perspective. The key differences are as follows:
- A partnership has more than one owner
- Accounting and taxation are more complex due to the need to prepare partnership accounts and allocate profit shares for tax purposes
- The business and the partners have ‘Joint and Several’ liability which is unlimited. This means that, any losses or other liabilities fall first on the business, then on the partners according to their share of the business, then fully on each individual partner. This means that any single partner could end up carrying all liabilities personally if the business and the other partners are unable to pay their share.
The last of these is quite a frightening prospect. It is for this reason that the Limited Liability Partnership form of business was created. It is a much safer option for the individual partner than operating as a ‘regular’ partnership.
In either case you should have a partnership agreement drawn up by a business lawyer as well as taking full financial and legal advice from qualified professionals.
‘Personally I prefer the simplicity of the sole trader for the very small ‘one man band’ low risk venture or the formal structure of the limited company for anything bigger or riskier.’