Why should I Register My Partnership?
A partnership is one of the most common business set-ups, but is it right for you? There are positives and negatives with everything but make sure that you weigh these up carefully before making any decisions.
Why should I have a partner?
Most business owners choose their partners based on their skillset. This could mean them having the same skills or different but complementary ones. For example, one partner may be able to use Adobe Illustrator for graphic design and the other one may be able to use Adobe Dreamweaver in order to do web design, these skills are complementary but not the same. Having a partner with a different skillset can be advantageous, if a problem comes about then it's likely one of you will know how to overcome it.
It is good practice to have protection in place when entering a partnership because it can lead to stalemates when you want something different than your partner. For example, one of you may want to stay as a small operation for the first 6 months and the other may want to expand as soon as possible. This can be helped by having a solid business plan in place, that sets out short and long term goals of the business, this can help get the two partners on the same page.
There are two types of partnership, registered and unregistered. This post will focus on registered partnerships and why they're probably the better option to go for.
The Advantages of becoming an LLP (Limited Liability Partnership)
1. It feels more official
This is only a small benefit, it's probably more psychological than factual. But once you've gone through the incorporation process, you get a little buzz about that fact you're now officially a partnership. This can lead on to a positive start to trading where both you and your partner are happy about the first official decision you've made.
2. Legal Obligations
This may not seem like a positive factor at first, but it can help to show you if your partner is willing to stick with the partnership, no matter what is thrown your way. When the partnership tax returns and paperwork deadlines roll around, having someone else there to check over facts and figures can be a benefit to the business. If your partner helps you out with these, rather than just sitting back and hoping for the best, then they have a good work ethic and want to make sure that everything is right.
3. Your clients may trust you more
Your clients and suppliers may be more willing to trust you when you're registered as it shows them that you're doing everything above board and you're not just a fly-by-night business that could disappear tomorrow.
4. There's limited liability
Being an LLP means there is limited liability - if the business was to collapse, the partners are protected from creditors. This is not the case when not registered, and the partners would have to pay for all liability, using their personal money, until the debt is cleared.
5. Your profits are secure
With a regular (unregistered) partnership the profits are split between the two partners who will then have to report them through their tax return.
When you're a limited liability partnership, the profits are retained by the partnership until paid out. There could be a tax advantage from doing it this way over a non-registered partnership so it's worth investigating it and seeking advice before registering.
These are a few of the many ways in which becoming an LLP is advantageous over not registering. But don't forget to carry out additional research into the right legal structure for your business.