Tips for beginning a partnership
By Ralli Partnership Law
Setting up a business partnership is a popular choice for start-ups, with lots of advantages over other business vehicles. It’s often more flexible than setting up a limited company, while teaming up with someone gives you more support and capital than going it alone. It can also be a favoured option for setting up a law firm, as it allows solicitors to own and manage their own business.
However, there’s a lot to think about before you take the plunge, as UK partnership law is a complex area fraught with potential pitfalls.
These essential considerations will ensure your business partnership process runs smoothly, and your venture gets off to a flying start.
- Choose your partner(s) carefully – From now on, your business partner will likely be the person you spend most time with. It goes without saying that this should be someone you trust inherently and get along with. It’s also important to have a shared vision for the business, and to find someone with skills that complement your own. You can have more than one partner of course, but again it’s vital the dynamics work and everybody is trustworthy and committed.
- Keep up with the paperwork – One of you will need excellent bookkeeping skills and an eye for detail. If you’re setting up an LLP, you’ll be expected to register with Companies House, send annual returns, and file perfect accounts, with penalties for late or incorrect filing. Meanwhile you’ll be responsible for sorting out the partnership’s taxes and accounting – so think carefully whether you’ve got the right flair for figures, or alternatively if you can afford an accountant.
- Limit your liability – A general partnership is the default and most popular type of partnership – but is this the best format for your business? Do you want your liability to be unlimited, to the extent that losses and debts could affect your personal assets? A popular alternative (particularly with law firms) is a Limited Liability Partnership, where members are only liable for their own share of the business, which is equal to their contributions.
- Classes of partner – An LLP has the added benefit that members can be full, salaried, or fixed share, opening up the possibility of bringing in an investor as a silent partner, or promoting a solicitor in a law firm to partner at a later date.
- Get a partnership agreement – Unless you have a partnership agreement drawn up, your business partnership will be governed by the Partnership Act 1890. As you might expect, this Victorian-era legislation is not suitable for most modern businesses, with profits and losses split equally between partners, and no provision for the death, retirement or expulsion of a partner – if this happens, there will be costly repercussions for your fledgling business.
The most valuable piece of business advice for those thinking of entering or starting a partnership is unquestionably to get a partnership agreement drawn up before you begin. It’s like signing a contract of employment or prenuptial agreement – it’s best for everyone to know where they stand and what they’re entitled to right from the get-go, and if things go wrong, you may find it protects both your business and your personal finances. If you’re serious about making your business a success, you can’t afford to be without a partnership agreement.