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Partnerships Start up Wales

 

UK partnerships have strong similarities to sole trader businesses in terms of the way they are taxed and how the owners are not seen as separate from the business itself.

Partnerships consist of at least two persons who own and often run the business. At the other end of the scale, some large accountancy firms, for example operate as partnerships but have hundreds or even thousands of partners. Their size dwarfs many private limited companies and even some publically listed ones.

Partnership Agreements

An important component of this type of business is that of a partnership agreement. This document forms the constitution of the business and largely determines the conduct of individual partners in given situations and the profit sharing ratios applicable to each person.

The following are examples of how a given profit occurring within a partnership might be split as determined by the agreement in force.

Example 1
Partnership Profit = £100,000 Partner A Partner B Partner C Total
Salaries (First £50,000) 20,000 30,000 0 50,000
Profit Share (Remainder) 30:25:45 15,000 12,500 22,500 50,000
Total Individual Partners Shares 36,667 42,500 22,500 100,000

Example 2
Partnership Profit = £150,000 Partner A Partner B Partner C Total
Salaries (First £65,000) 22,000 27,000 16,000 65,000
Profit Share (Remainder) 33:33:34 28,050 28,050 28,900 85,000
Total Individual Partners Shares 50,050 55,050 44,900 150,000

Example 3
Partnership Profit = £200,000 Partner A Partner B Partner C Total
Capital Account Balance 215,675 116,997 24,696 357,368
Interest Payments on Capital Accounts @3% 6,470 3,510 741 10,721
Salaries (First £50,000) 10,000 15,000 25,000 50,000
Profit Share (Remainder) 50:30:20 69,640 41,784 27,855 139,279
Total Individual Partners Shares 86,110 60,294 53,596 200,000

Longevity of Unincorporated Partnerships

Partnerships officially exist as long as the partners remain in the business. Unlike limited companies whose existence remains unchanged following the death or termination of one or more directors and shareholders, partnerships cease to exist when one partner dies or leave the business.

The partnership agreement might well contain provisions for such an eventuality so that the remaining owners can continue with their business without undue disruption.

Any alternative to this would result in catastrophic consequences for the business as a going concern.

 
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