A general partnership requires no formal documentation and can be established by two people (at a minimum) who decide to operate a business together with the aim of creating profit. Common drawbacks of a general partnership include the fact that it is governed by the Partnership Act 1890, which does not address issues like retirement and exit strategies. The Act also includes default provisions such as equal sharing of capital and profits, which may not suit your specific circumstances.
A general partnership does not have separate legal personality, which means you cannot enter contracts in the name of the partnership. Contracts can only be entered in the individual partners’ names, and the major disadvantage of this is that partners have personal liability for their actions or the actions of the other partner(s).
A written partnership agreement can override the provisions of the Partnership Act 1890 and include further provisions, such as how to deal with liabilities, thus ensuring that your business is run in the way that you want and that you are not caught out by unexpected provisions of current legislation.
An LLP is a partnership registered at Companies House and is similar to private limited companies in that it has a separate legal personality. This means you can enter contracts in the LLP’s name.
An LLP has no share capital, but the individual partners (called “members”) of the LLP can invest capital. The investment amounts and profit shares can be documented in an LLP agreement along with the terms relating to the partners’ rights and obligations in relation to the LLP.
Further to the above, the partners’ liability for debts is limited to the capital they have each invested in the LLP, so they avoid being personally liable for the LLP’s debts.
If you need assistance with the review, preparation and implementation of a shareholders’ agreement, partnership agreement or LLP agreement, please contact our Business Law team.