What is a General Partnership?
A general partnership is an easy way for two or more people to work together. They each invest their skills, time and money in the business and trade with a view to a profit. A general partnership is similar to the way in which one person can operate a business as a sole trader. This sort of set up does not have separate legal identity distinct from the partners and does not need to be registered at Companies House. Any profit is split between the partners regardless of who earns more or whether they focus on separate areas of the business. The partners are simply taxed on their share of the profit.
Usually, general partnerships are operated by doctors, dentists, accountants and solicitors but it can also be a useful way to run a business for a husband and wife team or a group of tradesmen. Each partner has wide-ranging power as a representative of the general partnership. When one of the partners’ acts on behalf of the business, the business is bound by the contracts that partner has entered into, even if the other partners have not agreed to enter those contracts.
Each partner, simultaneously under common law, has to act in the best interest of their fellow partners. They are expected to disclose any appropriate information to the other partners and to act for the benefit of the partnership as a whole. It is important to note that partners in a general partnership can be individuals but can also be limited companies and limited liability partnerships. Each individual is considered self-employed. They can also work for other partnerships or companies and be employed at the same time.
To start a general partnership one partner needs to be assigned the role of nominated partner. The business needs a name, permission from relevant local authorities, regulators or professional bodies. It must be registered with HMRC and each individual must be registered as self-employed for tax purposes.
Financial record keeping and banking arrangements must be established. If the business turns over a significant sum that exceeds the mandatory registration threshold then it will need to be VAT registered. If there are employees, consider putting employment contracts in place and registering a payroll scheme. The partners will also need to consider what insurances need to be put in place.
Decisions in a partnership are usually taken on the basis of a simple majority but things that fundamentally affect the partnership will need to be decided upon unanimously. The nominated partner will be responsible for all the record keeping of decisions and financial records for the partnership. They will need to look carefully at partnership expenditure and income, record how profits are shared and losses attributed to each partner. If there are staff members then payroll records will need to be maintained too.
The nominated partner will also be responsible for any returns to be submitted to HMRC such a VAT returns, on a regular basis. Any changes to the partnership such as a change in nominated partner will need to be reported as they happen. If the general partnership is VAT registered then details of new partners joining the partnership will also need to be reported. Partnerships normally dissolve upon the death or resignation of a partner but this depends on whether there is a partnership agreement in place. Its contents should determine what should happen on the death or resignation of a partner.
Next time we will look at limited liability partnerships and discuss the pros and cons of such a set up. If you need help and advice on the best type of company for your business then come and talk to M & N Group. We can also help with filing VAT returns and financial record keeping including records of banking transactions and we can help you run your monthly payroll.