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Partnership or company |
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| Business start up - Partnership or company |
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| Before you read this, you are advised to read the separate free information pages on partnership and limited company. This page compares the two frameworks for business. Less frequently used but often very useful structures are limited liability partnerships and limited partnerships, also explain at length on other pages. |
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| Here is the comparison |
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| Limited liability |
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| The shareholders in a company are not personally liable for the debts of the company. The creditors have recourse only to the assets of the company, and cannot look beyond that (unless the directors have acted outside their authority as directors or in certain other circumstances where they may be personally liable). Each partner in a partnership is personally liable for the debts of the partnership down to the shirt on his back. That applies even when he knows nothing about the debt, for example if another partner commits the partnership to it, or some one makes a successful claim against the partnership. |
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| Single legal person |
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| A company is a single legal person (known as a body corporate), able to make contracts through its directors or other staff. Just like you or me, a company must complete tax returns and generally abide by the law. A partnership on the other hand, is made up of individuals, any one of whom may commit the partnership to any agreement. The partners have a collective responsibility for all the tax of the partnership (just as they have for all other partnership debts). The partners may make their own arrangements for division of tasks, responsibility and liability. A partner is not an employee but the partners together may employ others. |
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| Statutory control |
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| A company exists and performs entirely within an extremely complicated framework contained in a vast number of pages of the companies’ acts. The duties of directors are specified. Among many others, the directors must keep a register of the shareholders and directors, and of charges against the company. Partnership is barely regulated at all. If there is no partnership agreement, then the Partnership Act of 1890 applies. |
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| The framework provided by the act is simple and straightforward, but does not deal with the many complications of trading a century after it was passed. Resolution of disputes between the partners, and divisions of partnership assets can cause particular anguish if they are not properly covered in the partnership agreement. However, less regulation gives a partnership scope for a less formal, more flexible and more easily changed structure. |
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| Public disclosure |
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| The company records provided to the Registrar of Companies are open to public inspection. The entire World can see the names and private addresses of directors and all the other information filed by a company. This information includes the accounts of a company, though small companies may file an abbreviated form of accounts. There is no obligation on a partnership to disclose anything to the public. |
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| Who controls? |
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| This is a matter of practice and choice rather than of law. For a partnership, although there is no difficulty in principle in setting out a precise set of duties, obligations, and rights for each partner, in practice partners tend to think of themselves as equal, even though some may be “more equal than others”. It is therefore easier to allocate precise roles within a company structure than in a partnership. Thus, individuals who might be a partner in a partnership situation may be shareholders, but not necessarily directors, in a company. |
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| Comparative cost |
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| A solicitor drawn partnership agreement is likely to cost more than an “off the shelf” limited company. The ongoing maintenance cost of a company is higher, as a result of the statutory filing requirements. |
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| Which to choose? |
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| It has been said, “Partnership is the most unstable ship that ever sailed”. Disputes in a partnership structure tend to be more difficult to resolve than disputes among directors and shareholders of a company. But in part, this may be due not to the inherent type of structure, but rather to the fact that so many partnerships just happen, with no formal partnership deed. You need a partnership agreement to keep yourself safe. |
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| If by chance you find any error in this information page, do please tell us. We should also welcome your suggestions for new subjects for information pages. These notes: |
 Do not provide a complete or authoritative statement of the law; |
| Do not constitute legal advice by Net Lawman; |
| Do not create a contractual relationship; |
| Do not form part of any other advice, whether paid or free. |
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