What is the difference between a partnership and a limited liability partnership?

Partnerships will also usually share any profits the business makes equally, but this is not always the case. In some partnerships one partner may not take any active role in the day-to-day operation of the business. As a consequence, they may take a smaller percentage of the business’s profits. It is important to have a company law solicitor draw up your partnership agreement to ensure that all partners understand how the business will be managed and how the profits will be divided.

In addition, it is important to understand that unlike limited companies, your partnership does not exist as a separate entity from you and your partners. But perhaps the most important aspect of a partnership is that all partners are liable for the entire debt of the business. If your partner runs up debts they can’t repay, you will also be liable.

A limited liability partnership, as its name suggests, limits the amount of money that each partner could lose if the business failed or ran up debts it could not repay. The set up of a limited liability partnership is virtually identical to an ordinary partnership except for the crucial difference regarding the liability of each partner in the business.

Having an accurate partnership agreement is important to ensure everyone in the partnership knows the limits of their liability. In all other respects you operate a limited liability partnership via self-assessment, and by paying your Class 2 and Class 4 National Insurance Contributions just as in an ordinary partnership.

If you require further legal advice about the difference between a normal partnership and a limited liability partnership, you can contact a company solicitor. They can advise you on the most suitable structure for your business. In addition, legal advice from a company solicitor will be necessary if your company is faced with legal action.

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