Resources

Partnering up to get going

04 November 2014

One of the major challenges when starting a business is deciding what form your business union should take. There are various structures: sole trader, partnership, limited liability partnerships, company etc. and each can be great for you. That said, there is not a single model that is truly ‘one size fits all’ and you will need to consider what works in the circumstances. You also need to consider the long-term goals, such as whether what is appropriate in 2014 will still work in 2020 (within reason of course!).

One of the oldest structures that can be used is that of a partnership. A group of partners will each be able to bind the business but, in an unincorporated partnership, each partner will have unlimited liability for the liabilities of the partnership. Following much campaigning, the concept of a Limited Liability Partnership was formally established by the Limited Liability Partnership Regulations in 2009. A major benefit of an LLP is that it limits the liability of the partners and provides a “corporate identity” to the partnership which is distinct from the partners personally (much like a company is deemed to be a “legal person”).

Whether or not your partnership will be an LLP or an unincorporated partnership, the landscape of your union should be well defined. The business’ constitution (its governing principles) should normally deal with:

  1. Decision Making: should the partners have to make some decisions unanimously?
  2. Funding: how will the business be funded in the future?
  3. Proceeds: where does the money go and in what proportions?
  4. Competition: should the partners be limited in relation to other business interests?
  5. Covenants: will an exiting partner be restricted from competing with the business?
  6. Exit: what are the mechanics for a party leaving or being expelled from the union?
  7. Have your say: any other points which are fundamental to you as a partner in the business.
The constitutional documents are your opportunity to say how you want the business to be governed. If you get the governing terms wrong at the start, you could be tied into a coalition with your partners which is not quite what you originally intended. Just because you have something in writing which seems to provide you with what you want for the future, the devil is, as always, in the detail.