A partnership is formed when two or more people join forces to execute a business, trade, or other activity. The two forms of partnerships accessible in the UK are conventional unincorporated partnerships and limited liability partnerships. While a traditional partnership has the same legal status as a sole proprietorship, it has two or more owners who are equally involved in the firm’s ownership, as opposed to just one. It is not required to keep statutory records, produce and file statutory accounts, or submit an annual report to the Registrar of Companies. It is also not required to be registered at Companies House. Individuals or corporations can be partners. They must register with HMRC as a partnership and specify which member will be responsible for submitting accounting to HMRC.
UK’s unincorporated partnership characteristics
The characteristics of this business form in the UK include:
- Must have at least two partners
- Lacks a distinct legal identity.
- Has no limit on the length of its life; Unless otherwise specified, it will last until it is dissolved.
- Partners are completely liable for the debts of the firm.
- Is often controlled by a partnership agreement, but one is not necessary.
- If there is no partnership agreement, the Partnership Act of 1890’s default regulations is in effect.
- There is no required minimum capital.
- This company is not permitted to engage in any foreign transactions and restructurings.
- It cannot be listed or kept publicly.
Formation of the entity
Because it is not incorporated, no notary, business registration, or governmental organizations are involved. Because there is no requirement for registration at Companies House and no registration charges, a partnership agreement, which is frequently the primary document and would ordinarily explain the description/activities of the firm, is not necessary. A majority of the partners make decisions. The sole exception is that altering the nature of the partnership firm requires the consent of all present partners.
Governance
Unless the partners agree otherwise, the following are the partners’ legal rights, obligations, and duties (subject to an opposing agreement as among themselves only in the agreement):
Rights
- Equal rights to capital and earnings;
- A right to defend each partner against claims for payments paid and liabilities incurred; and
- A right to an interest in contributions made to the partnership.
Responsibilities
- Participation in management is required;
- All actions taken by a partner in the normal course of business, including wrongdoing or negligence, bind the partnership and all partners; and
- Partners are jointly and severally accountable for all debts and responsibilities.
Duties
- To provide each partner with accurate accounts and complete information;
- To hold each partner accountable for any benefit he receives from partnership-related transactions without their consent;
- To share any information about the company, and to refrain from competing with the company.
Partner appointment, removal, and replacement
Unless specifically stated differently in the cooperation agreement:
Appointment
The entrance of new partners needs the unanimous permission of the other partners. Unless the existing agreement caters to the admission of new partners who agree to be bound by its terms.
Leaving the partnership
This only happens in the case of:
- Retirement
- Expulsion of a partner by other partners following a partnership agreement
- Bankruptcy
- Death
Periodic accounting requirements for the entity
Unless there is a conflicting agreement:
- The necessity to prepare accounts is not stated explicitly.
- Any partner can get accurate accounting and complete information.
- The Partnership Act of 1890 refers to the keeping of partnership records at the place of business.
Divvying up the proceeds
The partnership agreement controls this. Earnings are typically determined yearly, although partners may periodically withdraw funds against anticipated profits (called drawings). A regulating or restraint agreement between the owners may be included in the agreement.
Taxes and expenses
Because a partnership is not a taxable entity, no corporation tax is required. Individual partners are believed to carry out operations rather than the partnership as a whole. When assets are sold, each partner is considered to own a portion of each asset, making them all liable for capital gains tax on the earnings allotted to them. Partners are taxed separately on their portion of the earnings or losses. Even if it registers for value-added tax (VAT) under its name, a partnership must file a tax return on behalf of each member describing the partnership’s profits.
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Guide on company registration in the United Kingdom
Breakdown of United Kingdom company registration fees and expenses
Limited Liability Partnership registration guide in the United Kingdom
