Partnership and limited company

Some people assume that a one-man/woman business is too small to merit a limited company being floated to own it. Not so.

There are plenty of reasons why the corporate structure is ideal for single person enterprise – tax, security of assets, expansion potential and others. For example, if the limited company gets into a legal dispute or owes money, you as an individual have no liability at all.

Partnership ( i.e. a formal written agreement) may be appropriate if there are two or several people getting together to work – it regulates the relationship between partners in terms of their shares of profit ( or loss…), inputs of capital and areas of responsibility. And crucially it sets out a definite and binding procedure if one partner wants to leave or the other want him or her to leave. Partnership brings joint and several liability.

This means that if you are in a partnership and your partner misbehaves, you may share liability with him or her. Partners have a personal liability to their lenders, customers and suppliers. So if something goes wrong, they may be sued and their own assets and property may ultimately be at risk.

So again, consideration should always be given to operating the business as a limited company. But even if this structure is used, if the firm needs to borrow substantial funds or has a high overdraft running, the bank may require personal guarantees from directors as well as a floating charge over the company’s assets.

Where a limited company leases commercial premises, the landlord may ask for personal guarantees from directors if afraid the company is not strong enough or well-enough established to be a safe bet for the landlord over the term of the lease.