When setting up a business the owners will need to choose a business structure under which to operate from. If there is more than one owner they can either choose to set the business up as a limited company or limited liability partnership (LLP) – these are legal entities in their own rights with limited liability, registered with Companies House, and the owners becoming shareholders. Or they can register with HMRC as a business partnership. Before registering, they will need to choose a name for the business and also elect a ‘nominated partner’. The nominated partner is the one responsible for keeping all the business records and submitting the tax returns.
The partners of the business (minimum of two) are jointly responsible for any losses that the business makes and any bills that the business incurs. A partner doesn’t have to be another person but could also be a limited company (which counts as a ‘legal person’ and can, therefore, be a partner). When entering into a partnership it should be made sure that all the partners have something valuable to contribute – how much a partner contributes should determine their share of the business.
There can be different types of a partner in a partnership; general partners or limited partners. A general partner will take part in the day-to-day running of the business, whereas a limited partner owns a share of the business but will take no part in the daily operational activities. Partners can either be equitied or salaried – equity partners will have contributed to the business at the time that it became a partnership and their returns will be based on how much of the business they own and the profits and losses that it makes. Salaried partners will be compensated with salaries and maybe also bonuses.