Are you interested in going into business with another person, such as a friend or family member? Are you wondering what the best way to structure this relationship is? Is a business partnership more effective than forming a company? This article explains the key differences between companies and business partnerships, including their advantages and disadvantages, to help you choose a business medium that is right for you.\u00a0<\/p>\n\n\n\n
Different sets of laws govern partnerships and companies. <\/p>\n\n\n\n
There are two primary forms of business partnerships:<\/p>\n\n\n\n
In partnerships, the partners share in the profits and the losses of the business. Each partner has broad authority to act on behalf of the partnership. While many partnerships split profits and losses evenly, some partners can receive more profits than others. This will be based on the partnership agreement between all the partners. Likewise, the partnership agreement will specify the extent of each partner\u2019s powers and responsibilities. Often, a business started by two or more people will begin as a general partnership, as it does not require any formal registration. However, with a lack of clear rights and responsibilities for each partner, it is best to formalise this in a partnership agreement or consider changing to an LLP or a limited company structure. <\/p>\n\n\n\n
The vast majority of companies in the UK are \u201cprivate companies limited by shares\u201d. For companies, ownership in the business is based on the number of shares each shareholder has. However, being a shareholder does not automatically grant you the right to make decisions on behalf of the company; to do this, you must also be a director.<\/p>\n<\/div>\n\n\n\n
We will now go on to consider the legal definition of:<\/p>\n\n\n\n
However, we will not consider sole traders.<\/p>\n<\/div>\n\n\n\n
In both general partnerships and LLPs, the partnership agreement sets out the rights and obligations between all the partners. There is no legal requirement to have a partnership agreement; however, it is best practice to do so.<\/p>\n\n\n\n
The partnership agreement is a contract between each of the partners that specifies key terms such as<\/a>:<\/p>\n\n\n\n\n