Partnership Trading in partnership with others is very similar to being a sole trader with the difference being that there are some partners involved. Partnerships are attractive for smaller-scale businesses or business where there are legal requirements for personal liability to be taken on by the owners, but they are often detoured with people more often opting for company structures.
However, if you do believe a partnership would work best for the business you wish to run, the details below provide some of the pros and cons of partnerships.
- Low-level compliance
- Profits can be split in accordance with the partnership agreement
- Share of losses can be offset against other personal income of each partner
- Allows for pooling of resources between a number of people.
- Joint and Several Liability – which means you remain 100% liable for partnership obligations to third parties
- Decisions of one partner are enforceable against the whole partnership by a third party
- Taxable profit from the partnership will be taxable at higher personal tax rates if the level of income is in those tax brackets.
Prudentia Law is happy to assist clients with preparing appropriate partnership agreements for their businesses if they wish to trade as partnerships. Feel free to contact one of the team to discuss.
A Joint Venture is a structure similar to a partnership but with a few subtle differences. They are created by way of a particular Joint Venture agreement whereby the participating parties create a contract between themselves which will manage and govern the way the Joint Venture operates.
The major differences between a partnership and a Joint Venture are:
- The parties are separate businesses of their right and are pooling their assets, know-how or expertise together to form a standard business for a specific purpose. To that end, each contracting party still retains ownership of its assets and intellectual property, rather than grouping this and having it owned by one entity.
- There is no joint and several liability of each party in respect of each other’s liabilities.
- No party can legally bind the other parties without their consent.
- The requirements between the parties in terms of their duties to each other are governed by the Joint Venture agreement, so as such there are no real fiduciary duties between the parties that would normally arise when a partnership is the trading structure.
If you are considering forming a Joint Venture of some sort and would like Prudentia Law to assist with putting an agreement in place, it is worth considering the pros and cons of Joint Ventures detailed below.
- Separate liability between parties with liability normally being limited to a party’s share
- Losses from the venture can be attributed to each party in their respective share
- No separate tax filing required for an unincorporated Joint Venture
- A private agreement between the parties that doesn’t get registered anywhere.
- Often difficult to distinguish between a Joint Venture and Partnership, and, therefore, the potential for Partnership Act rules to be applied to the Joint Venture
- Third party perception may be less favourable when compared to a company structure
- May be less simple for raising finance and new capital.