Introduction to partnerships
I briefly touched on the different types of businesses entites in my posts about business taxation, where we looked at sole traders, partnerships and limited companies. Over the next series of posts, we will look in depth at the different types of partnerships that exist.
We will consider three different types of partnerships:
- The traditional partnership, which is governed by the Partnership Act 1890, which contains the basic structure of partnership law. this type of partnership is often known as a ‘general partnership’. The partners in a partnership of this type have unlimited liability for the debts and obligations of the partnership.
- The Limited Partnership (LP), which was introduced by the Limited Partnership Act 1907. Provided one partner is the general partner and therefore accepts unlimited liability, all of the other partners (known as the limited partners) can benefit from limited liability. The limited partners must not be involved in the day-to-day running of the partnership business (otherwise they lose their limited liability status). For this reason, LPs are often used in fund structures. The limited partners are passive investors with no active role in managing the partnership business.
- The Limited Liability Partnership (LLP), which was introduced by the Limited Liability Partnerships Act 2000. LLPs are often described as hybrids as they combine elements of both a partnership and a company. They have the flexibility of conventional partnerships in relation to their internal arrangements but they are treated as single legal entities with limited liability of their own. LLPs are subject to many provisions of the Companies Acts (and most particularly the Companies Act 2006).