{"id":2726,"date":"2022-03-23T05:27:20","date_gmt":"2022-03-23T05:27:20","guid":{"rendered":"https:\/\/uk.legalvision.com.au\/?p=2726"},"modified":"2025-07-02T00:41:40","modified_gmt":"2025-07-01T23:41:40","slug":"choosing-between-partnership-and-llp","status":"publish","type":"post","link":"https:\/\/legalvision.co.uk\/corporations\/choosing-between-partnership-and-llp\/","title":{"rendered":"Choosing Between a Partnership and an LLP"},"content":{"rendered":"\n<p><span data-preserver-spaces=\"true\">Do you intend to start a partnership with at least one other person? Perhaps you want to form a partnership rather than a company, but you are unsure wha<\/span>t type to form<span data-preserver-spaces=\"true\">. This article will explain the two key types of partnerships \u2014 a general partnership and a limited liability partnership (LLP) and what the advantages and disadvantages of each are.&nbsp;<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Overview&nbsp;<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">Partnerships generally refer to business structures where two or more people work together to share in the profits and losses.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Before considering how general partnerships and LLPs are different, it is worth understanding what they have in common.<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Partnership Agreements<\/span><\/h3>\n\n\n\n<p><span data-preserver-spaces=\"true\">Partnership agreements govern both general partnerships and LLPs. If your partnership does not have a partnership agreement, the law will imply certain terms into your partnership.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Therefore, all partnerships should have partnership agreement that all parties draft and agree to together. This will minimise any chance for future disputes.&nbsp;<\/span><\/p>\n\n\n\n<div class=\"box box--icon box--info\">\n<p><span data-preserver-spaces=\"true\">A partnership agreement is a contract between each of the partners. It sets out the responsibilities each partner owes the others, such as what percentage of the profit each partner is entitled to.&nbsp;<\/span><\/p>\n<\/div>\n\n\n\n<p><span data-preserver-spaces=\"true\">One of the great benefits of both general partnerships and LLPs is that the law permits the partnership agreement to be quite varied. Partnerships are much more flexible because they do not have to adhere to company law. Short of a few exceptions, your partnership agreement can get quite detailed.&nbsp;<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Matters to Address in a Partnership Agreement<\/span><\/h3>\n\n\n\n<p><span data-preserver-spaces=\"true\">In general, partnership agreements for both general and LLPs may specify:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><span data-preserver-spaces=\"true\">the name of the partnership;<\/span><\/li><li><span data-preserver-spaces=\"true\">how much money each partner will put into the business and what percentage of the profits they c<\/span>an <span data-preserver-spaces=\"true\">receive;<\/span><\/li><li><span data-preserver-spaces=\"true\">how much, if any, salary partners are entitled to receive and how the partners must account for this;<\/span><\/li><li><span data-preserver-spaces=\"true\">what interest rate partners will be entitled to claim from the partnership for advancing the partnership money;<\/span><\/li><li><span data-preserver-spaces=\"true\">the amount of work each partner will be expected to contribute; and<\/span><\/li><li><span data-preserver-spaces=\"true\">decision-making processes, such as what decisions need to be made collectively and which can be delegated.<\/span><\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Distinguishing Between General Partnerships and LLPs<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">One of the easiest ways to distinguish between general partnerships and LLPs is that general partnerships come about automatically. In contrast, you and your partners must undertake certain formal steps when creating an LLP.&nbsp;<\/span><\/p>\n\n\n\n<div class=\"box box--icon box--idea\">\n<p><span data-preserver-spaces=\"true\">Likewise, general partnerships do not benefit from the legal principle of incorporation, whereas LLPs do.<\/span><\/p>\n<\/div>\n\n\n\n<p><span data-preserver-spaces=\"true\">Therefore, we will consider the advantages and disadvantages of general partnerships before considering LLPs.&nbsp;<\/span><\/p>\n\n\n\n\n<a href=\"#content-next\"\n   class=\"block p-4 mt-10 text-xl font-bold text-center text-white no-underline bg-gray-800 rounded-t-xl\">\n    Continue reading this article below the form\n    <i class=\"text-xl fa-regular fa-arrow-down\"><\/i>\n<\/a>\n<div class=\"px-6 pt-10 pb-12 mb-10 text-center bg-gray-100 rounded-b-xl sm:px-12 test\">\n    <div class=\"mb-8 text-2xl font-bold text-orange\">\n        Need legal advice?\n        <br>\n        <span class=\"text-lg not-prose\">\n   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If you then buy tools at the hardware store, the law would likely consider that you are now in a partnership.&nbsp;<\/span><span data-preserver-spaces=\"true\">You do not have to sign anything or create a partnership agreement for this to be the case (though, in practice, you should always set out the terms of the agreement in writing).&nbsp;<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">The key element here is that you must act run your business &#8220;in common&#8221;. For example, if you tell your friend that you will pay him \u00a315 an hour, this suggests that you are not sharing in the profits. Instead, the relationship between you and your friend is more like an employee-employer relationship.&nbsp;<\/span><\/p>\n<\/div>\n\n\n\n<p><span data-preserver-spaces=\"true\">If there was later a dispute, the law would likely determine that this did not constitute an agreement to enter into a partnership.&nbsp;<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Running a General Partnership<\/span><\/h3>\n\n\n\n<p><span data-preserver-spaces=\"true\">General partnerships do not exist separately from the partners. A partnership does not have a legal personality and can not do things like entering into contracts and owning property.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Instead, partners are generally responsible for the other partners&#8217; debts arising during the partnership&#8217;s business.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">This is the effect of an unincorporated business structure and is one of the most significant disadvantages of operating a general partnership. If one of your partners accidentally injures another person in the course of business or causes a client considerable financial loss, you can be held liable for their debts. Moreover, this liability is unlimited, which means that if the partnership does not have enough money to cover the debts, your personal assets could be on the line.&nbsp;<\/span><\/p>\n\n\n\n<div class=\"box box--warning box--icon\">\n<p><span data-preserver-spaces=\"true\">While there are ways to mitigate your liability through insurance and well-drafted contracts, there is always the risk of being substantially liable for another partner&#8217;s debts. Therefore, you should ensure that you trust your partners to act with the partnership in mind and exercise good judgment at all times.<\/span><\/p>\n<\/div>\n\n\n\n<h3 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Fiduciary Relationships&nbsp;<\/span><\/h3>\n\n\n\n<p><span data-preserver-spaces=\"true\">Fortunately, the law imposes a special relationship between partners, called a fiduciary duty. This reflects the fact that there must be the utmost good faith between partners when dealing with one another.&nbsp;<\/span><\/p>\n\n\n\n<div class=\"box box--icon box--info\">\n<p><span data-preserver-spaces=\"true\">If your partner breaches this duty, you have a claim against them just on this basis alone.<\/span><\/p>\n<\/div>\n\n\n\n<p><span data-preserver-spaces=\"true\">The advantage to general partnerships is that they happen automatically and with little fuss. You do not have to file any paperwork, though you should obtain advice on drafting a well-written partnership agreement.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">The disadvantage is that you are liable for your partners&#8217; actions.&nbsp;<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">LLPs<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">If general partnerships are easy to create but lack the benefit of limited liability, LLPs are the opposite.&nbsp;<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Creating an LLP&nbsp;<\/span><\/h3>\n\n\n\n<p><span data-preserver-spaces=\"true\">Because LLPs benefit from limited liability (see below), its &#8220;members&#8221; (i.e., what the law refers to as the partners) have more hoops to jump through to create and administer the LLP.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">You must register your LLP with Companies House by sending a few forms off, though you do not need to make the partnership agreement public (which makes this one of the key benefits over limited companies).&nbsp;<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Running an LLP<\/span><\/h3>\n\n\n\n<p><span data-preserver-spaces=\"true\">You will not be liable for the partnership&#8217;s debts because it will be its own legal personality. It can enter into contracts and own property.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">As a result, LLP partners must meet a higher standard. Two examples include&nbsp;<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><span data-preserver-spaces=\"true\">ensuring the partnership has sufficient funds to settle any debt; and<\/span><\/li><li><span data-preserver-spaces=\"true\">filing annual reports.<\/span><\/li><\/ul>\n\n\n\n<p><span data-preserver-spaces=\"true\">Compared to companies, which are the other main incorporated business structure, there is still far more flexibility, like not having to maintain share capital. However, it is still more arduous than a general partnership&#8217;s administration requirements.&nbsp;<\/span><\/p>\n\n\n\n<div class=\"box box--icon box--info\">\n<p><span data-preserver-spaces=\"true\">The benefit of legal personhood is the biggest advantage: your partnership under an LLP is its own separate legal entity, and you will not be personally liable for the partnership&#8217;s actions.&nbsp;<\/span><\/p>\n<\/div>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Key Takeaways<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">General partnerships and limited liability partnerships (LLPs) have much in common. They both are governed by agreements between the partners, which gives the partners a great degree of flexibility over how they can run their business. General partnerships come about automatically if two or more partners run a business in common, whereas you must incorporate LLPs through a formal process. General partnerships do not benefit from the principle of limited liability, which means you can be held liable for your partners&#8217; actions. LLPs are their own legal person, which means that the partners are not liable for the partnership&#8217;s actions. The requirements on the partners under an LLP are higher.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">If you need help navigating a partnership dispute, our&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/legalvision.co.uk\/corporate-lawyers-lp\/\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">experienced corporate lawyers<\/span><\/a><span data-preserver-spaces=\"true\">&nbsp;can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today at <a href=\"tel:+448081968584\" class=\"AVANSERnumber dynamic-number\">0808 196 8584<\/a> or visit our&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/legalvision.co.uk\/membership\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">membership page<\/span><\/a><span data-preserver-spaces=\"true\">.<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Frequently Asked Questions<\/span><\/h2>\n\n\n\n<div class=\"schema-faq wp-block-yoast-faq-block\"><div class=\"schema-faq-section\" id=\"faq-question-1648011200239\"><strong class=\"schema-faq-question\"><strong>What is a general partnership?<\/strong><\/strong> <p class=\"schema-faq-answer\">A general partnership comes about when two or more people agree to act as partners and then start their business.<\/p> <\/div> <div class=\"schema-faq-section\" id=\"faq-question-1648011206486\"><strong class=\"schema-faq-question\"><strong>What is an LLP?<\/strong><\/strong> <p class=\"schema-faq-answer\">A limited liability partnership is a special type of partnership. It allows for your partnership to exist as its own legal person. As a result, there are more administrative obligations on the LLP partners than a general partnership.<\/p> <\/div> <\/div>\n<div class=\"not-prose m-feedback-prompt\">\n    <!-- Thumbs up\/down bar -->\n    <div class=\"m-feedback-prompt__main\">\n        <div class=\"m-feedback-prompt__title\">Was this article helpful?<\/div>\n        <div>\n            <!--span class=\"m-feedback-prompt__button--text\">Thanks!<\/span-->\n            <button type=\"button\" class=\"m-feedback-prompt__button m-feedback-prompt__button--yes\"\n                    data-analytics-link=\"feedback-prompt:yes\" aria-label=\"Agree\">\n                <i class=\"fa-regular fa-thumbs-up fa-3x\"><\/i>\n            <\/button>\n            <button type=\"button\" class=\"m-feedback-prompt__button m-feedback-prompt__button--no\"\n                    data-analytics-link=\"feedback-prompt:no\" aria-label=\"Disagree\">\n                <i class=\"fa-regular fa-thumbs-down fa-3x\"><\/i>\n            <\/button>\n        <\/div>\n    <\/div>\n\n    <!-- Feedback form -->\n    <div class=\"m-feedback-prompt__form\">\n        <div class=\"m-feedback-prompt__form--thanks \">\n            <div>Thanks!<\/div>\n            <p>\n                We appreciate your feedback \u2013 your submission has been successfully received.            <\/p>\n        <\/div>\n        <form id=\"contact-form\" class=\"m-feedback-prompt__form--form\" action=\"\" method=\"post\">\n            <input type=\"hidden\" id=\"authenticity_token\" name=\"authenticity_token\" value=\"9eb4f72322\" \/><input type=\"hidden\" name=\"_wp_http_referer\" value=\"\/api\/wp\/v2\/posts\/2726\" \/>            <input value=\"https:\/\/legalvision.co.uk\/corporations\/choosing-between-partnership-and-llp\/\" type=\"hidden\" name=\"currenturl\"\n                   id=\"currenturl\">\n            <input value=\"Choosing Between a Partnership and an LLP\" type=\"hidden\" name=\"currenttitle\"\n                   id=\"currenttitle\">\n            <label>\n                <!-- display on thumbs-up -->\n                <span class=\"m-feedback-prompt__feedback m-feedback-prompt__feedback--yes\">\n                    Can you tell us <span class=\"font-semibold\">why<\/span> you found it helpful?\n                <\/span>\n\n                <!-- display on thumbs-down -->\n                <span class=\"m-feedback-prompt__feedback m-feedback-prompt__feedback--no text-lg\">\n                    How can we better improve this article?\n                <\/span>\n                <textarea name=\"feedbackmessage\" id=\"feedbackmessage\" required><\/textarea>\n            <\/label>\n\n            <div class=\"m-feedback-prompt__form--error\" id=\"form-submit-error\"><\/div>\n            <button id=\"submit-contact-form-button\" type=\"submit\" name=\"commit\" class=\"m-feedback-prompt__form--submit\"\n                    data-analytics-link=\"feedback-prompt:submit\">\n                Submit            <\/button>\n        <\/form>\n    <\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>Do you intend to start a partnership with at least one other person? Perhaps you want to form a partnership rather than a company, but you are unsure what type to form. This article will explain the two key types of partnerships \u2014 a general partnership and a limited liability partnership (LLP) and what the<a href=\"https:\/\/legalvision.co.uk\/corporations\/choosing-between-partnership-and-llp\/\">Continue reading <span class=\"sr-only\">&#8220;Choosing Between a Partnership and an LLP&#8221;<\/span><\/a><\/p>\n","protected":false},"author":13461,"featured_media":611,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_relevanssi_hide_post":"","_relevanssi_hide_content":"","_relevanssi_pin_for_all":"","_relevanssi_pin_keywords":"","_relevanssi_unpin_keywords":"","_relevanssi_related_keywords":"","_relevanssi_related_include_ids":"","_relevanssi_related_exclude_ids":"","_relevanssi_related_no_append":"","_relevanssi_related_not_related":"","_relevanssi_related_posts":"2648,2018,1191,1010,1034,2541","_relevanssi_noindex_reason":"","editor_notices":[],"footnotes":""},"categories":[28],"tags":[139,141,507,655],"class_list":["post-2726","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-corporations","tag-limited-liability-partnership","tag-partnership-agreement","tag-general-partnership","tag-business-partnership"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.1.1 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Choosing Between a Partnership and an LLP | LegalVision UK<\/title>\n<meta name=\"description\" content=\"Are you choosing between a partnership and an LLP for your business structure? 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