Essentials Elements of a Partnership Agreement

The essential elements of a partnership are:

* All individuals share the risks and rewards of the business.

* Each partner is entitled to share the net profits of the business. A contract need not provide for equal shares. It may depend upon how much the partner has invested.

* Partners are jointly and severally responsible for all the debts and obligations of the business without any limit, including loss and damages arising from wrongful acts or omissions of their fellow partners and potential liability to third parties.

* Partners have equal rights to make decisions which affect the business or the business assets.

* All individuals share the ownership of the assets of the business, although they may have agreed that the firm will use an asset which is going to buy one of the partners individually.

What is the Purpose of a Partnership Agreement?

A formal written partnership agreement may accomplish the following goals:

* To minimize misunderstandings among the partners by fully setting forth each partner's rights, duties and liabilities.

* To provide guidance on what to do in the event of a dispute among the partners.

* To provide the sort of clarity and stability that investors and bankers prefer

Types of Partnerships

1. General

Two or more individuals as co-owners of a for-profit business. All partners are responsible for the liabilities and debts of the partnership. For tax purposes, partnerships enjoy single taxation. Income is reported as part of each partner's personal income.

2. Limited Liability

A general partnership which elects to operate as an LLP. Unlike a General Partnership, the partners in an LLP enjoy protection from many of the partnership's debts and liabilities. For tax purposes, the income of an LLP is taxed in the same manner as a General Partnership.

3. Limited

A partnership with at least one General Partner and one Limited Partner. A limited partner's liability is limited to the amount invested, while the General Partner(s) assumes all the liabilities and debts of the partnership. For tax purposes, the income is taxed in the same manner as a General Partnership.

4. Silent

A silent partner is one who still shares in the profits and losses of the business, but who is uninvolved in its management, and/or whose association with the business is not publicly known; these partners usually provide capital.

As you can see it is folly to operate a business under any partnership basis without an agreement in place. Net Lawman provides you expertly drafted partnership agreements.

Limited Liability Partnership

A limited liability partnership (LLP) is a partnership in which some or all partners (depending on the jurisdiction) have limited liability. It therefore exhibits elements of partnerships and corporations. In an LLP one partner is not responsible or liable for another partner's misconduct or negligence. This is an important difference from that of a limited partnership

In the United Kingdom LLPs are governed by the Limited Liability Partnerships Act 2000 (in Great Britain) and the Limited Liability Partnerships Act (Northern Ireland) 2002 in Northern Ireland. A UK limited liability partnership is a corporate body - that is to say, it has a continuing legal existence independent of its members, as compared to a Partnership which may (in England and Wales, does not) have a legal existence dependent upon its membership.

Difference between Partnership and Limited Liability Partnership

In a traditional partnership, if the business makes losses or is successfully sued, the individual partners are liable; this includes their personal possessions, homes, money etc. An LLP has limited liability, so is much safer for the partners, as they are not personally liable for any losses.

On the other hand, an LLP requires:

* registration (£95) at Companies House

* more strict (but not particularly difficult) administration to meet Companies House rules

* annual publication of accounts.

Furthermore, general partners have an obligation of strict liability to third parties injured by the Partnership. General partners may have joint liability or joint and several liabilities depending upon circumstances. The liability of limited partners is limited to their investment in the partnership

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