A limited partnership, not to be confused with a limited liability partnership, comes into existence under the Limited Partnerships Act 1907, where two - ‘general partner’ & ‘limited partner’- or more come together to carry out a business with an aim to earn a profit.
To form a limited partnership you need to:
- Choose a name
- Have a registered address, i.e. principal place of business
- Appoint general and limited partners, (see below)
- Register with Companies House
Choosing a name for a limited partnership
You may choose to run the limited partnership business in your own name or have a name for the business. In either case, this part is pretty vital to follow;
- It should not include ‘limited’, ‘Ltd’, ‘limited liability partnership, ‘LLP’, ‘public limited company’ or ‘plc.’ Instead the name should end with either “limited partnership” or “LP” and if the principal place of the partnership business is in Wales then the name must end with “partneriaeth cyfyngedig” or “PC”.
- It should not be offensive
- It should not be the same as an existing trademark
- It should not contain a ‘sensitive’ word or expression or suggest a connection with government or local authorities unless you get permission to use such a word
It should be ensured that all the official papers (e.g. invoices, letterhead, etc.) bear the name of all partners and the business name (if any). Also, a business name is not required to be registered.
Principal place of business
Having a registered address for partnership business is a mandatory requirement. The address so registered as the principal place of business will be the place where is where official communications will be sent. It must be:
- A physical address
- The main place of business
- Located in the same country where the limited partnership is registered. For example, if you have a limited partnership registered in Scotland then you must have a registered office address in Scotland.
General and Limited partners
This is the most striking parameter, which makes limited partnerships different from a limited liability partnership (LLP).
Unlike a general partnership in a limited partnership, there needs to be at least one ‘general partner’ and one ‘limited partner’. The difference between both of them is based upon the responsibilities and liability for the partnership’s debts.
A. Limited partners
Limited partners as the name suggests are liable only to the extent of their share in the partnership. Their personal assets cannot be used to pay off the debts of the business. But the benefit comes at a ‘cost’.
- Cost as in, at the time of setting up the partnership business, they have to contribute money or property valued at a stated amount to the initial investment which they cannot take back during the lifetime of the partnership business.
- They cannot participate in managing the business.
All limited partners must register for self-assessment as to the share of profits from the partnership, business is taxed as personal income for the partners.
B. General partners
The general partner in a partnership is the member who controls and manages the business. Unlike limited partners, their liability is unlimited, i.e., they can be held personally liable to pay off the debts of the partnership business if the latter cannot.
Responsibilities of general partners include:
- The most important being to register the partnership with the Companies House
- Register the partnership business and themselves separately for self-assessment with HMRC.
- Register for VAT if the VAT taxable turnover crosses or is about to cross £85,000.
- Act for the business if it’s wound up and dissolved.
- If any of the general partners is a company, then accounts may need to be sent to Companies House.
- Where the business is set up for certain investment purposes, only they can apply for the partnership to act as an authorised contractual scheme (ACS).
Registering the Limited partnership with Companies House
To register a limited partnership you will have to download and fill the registration form. The form must be signed by all the partners and sent to Companies House with a fee of £20 paid through cheque, made payable to ‘Companies House’, or by postal order. It takes 5 days to complete the registration.
If you want same-day registration then you must send your application in an envelope bearing the words ‘Same day registration’ as an open statement and include a cheque or postal order for £100. CoHo must receive it before 3 pm, Monday to Friday. If it is received after 3 pm then registration will be done the next working day. The form needs to be sent to Companies House’s correct address depending upon where the limited partnership is based.
Reporting the changes
Whenever there is any change to the limited partnership it needs to be informed to Companies House. Changes include, changes in:
- registered address
- registered name
- type of business activity
- partners’ details like changes of name, the addition of a new partner, etc.
- partners’ liability, for example, if a limited partner becomes a general partner, etc.
- the sum contributed by a limited partner
All such changes need to be informed to Companies House in form LP6. It must be signed at the end by the firm, and sent by post or delivered to the Registrar of Companies for registration within seven days of the changes taking place.
Taxability of income
All partnerships, whether limited or LLP are a pass-through entity, meaning all profits of the partnership business are “passed” to the partners and taxed as personal income for the partners instead of being taxable in the hands of the partnership itself.