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What are you trading as? (1/3): Sole Traders and Partnerships

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Simply ‘setting up a business’ is not as straightforward as it might sound.

There are a multitude of ways in which a business can go about its operations and a variety of factors which should be considered in weighing up this decision. The Corporate & Commercial team at BakerLaw have a host of experience advising businesses of all forms and are able to advise you on which trading vehicle might be most appropriate for your business needs. Your business may have grown to such an extent that a particular way of trading is no longer appropriate, for example.

In this series of articles, we have set out an explanation of some of the options that businesses have when deciding how to operate. In this first instalment, we will consider sole traders and partnerships.

Sole Traders:

Someone who runs their business on their own, making all the business decisions. The business does not have its own legal personality, so all the assets and liabilities of the business are attributed to the sole trader personally.

Small independent business owners tend to favour this way of operating, mainly due to the lack of formalities required and the low administrative burden.

Partnerships:

General Partnerships:

This form of partnership has no formal registration requirements. It refers to the relationship between two or more persons carrying out a business together in pursuit of profit. It is usually recommended that the partners have an agreement in place governing their relationship. In the absence of this, the fall-back provisions of the Partnership Act 1980 apply.

Again, the partnership has no separate legal personality, so assets are owned by the partners themselves. Not only are partners jointly and severally liable for the debts and obligations of the partnership business, but also for any wrongful acts and omissions of their fellow partners in the ordinary course of their business.

Limited Partnerships:

Like a general partnership, a limited partnership must be formed between two or more persons carrying out a business together in pursuit of profit. This form of partnership does require registration at Companies House, however the partnership does not have a separate legal personality.

A limited partnership must have at least one of the following:

  • A general partner – responsible for the management of the business and has unlimited liability for the debts and obligations of the business;
  • A limited partner – does not take an active role in the business’s operation and their liability is limited to their capital investment in the business.

Limited Liability Partnerships (LLPs):

An LLP must be registered at Companies House and must comply with various formalities, including the annual filing of company accounts and confirmation statements. An LLP has a legal personality entirely separate from that of its members. This means that it can hold its own assets, enter into contracts and incur liabilities. Unlike a limited company, an LLP does not have share capital.

As the name suggests, the liability of the partners here will be limited to their capital investment in the partnership.

Hopefully this has helped clarify a couple of the mechanisms available to conduct business under. In the following instalments of this series we will cover various forms of incorporated companies, unincorporated associations and community interest companies. If you are looking for advice and would like to discuss how we can help you to structure your business, please contact Simon Porter in BakerLaw’s Corporate & Commercial Department or call 01252 730754.

This article is not a definitive statement of the law. It is designed as a free update on the law at the time of publishing. It is not a substitute for legal advice on specific facts and circumstances. BakerLaw LLP and/or the writer accepts no liability or responsibility for reliance on this article and recommends that you seek independent legal advice on your specific circumstances prior to taking any steps.

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