Partnership Agreement Between Two Limited Companies
Understanding partnership agreement between two limited companies is important if you want to start a business with someone else.3 min read
Understanding partnership agreement between two limited companies is important if you want to start a business with someone else. When two people decide they want to start a business together, this is known as a partnership. The profits and losses of a partnership are split between the partners. Most times, the partners who own the company will have an equal split regarding its management.
Even though you do not have to have any type of legal documents to officially start a partnership, it is recommended that you create a partnership agreement. This agreement will outline the intricacies of the partnership, including how it is to be managed, how the profits will be distributed, and how it can be dissolved if need be.
How Many Partners can a Partnership Have?
A partnership can have up to 20 partners. If you start a company with people and there are more than 20 partners, you will need to register it as a company.
Pros and Cons of a Partnership
When you form a partnership, this gives you the ability to raise capital. Please be aware that a partnership is not its own separate entity. This means any expenses and debts accrued by the partnership will be the responsibility of the partners. If need be, the partners' personal assets can be touched to pay back any unpaid debts. You also need to note that you can be held liable for the actions of your partners.
What Is a General Partnership?
If you were to form a general partnership, this means that each partner is going to be held responsible for the debts and liabilities of the company. Furthermore, it also means that each partner has the potential to be held liable for the actions of the other partners.
If you want to set up a partnership, the process is fairly easy and straightforward, especially when compared to forming a company. The internal structure is very flexible as well.
In regards to the maintenance of a partnership, it is usually much simpler than that of a company. You will have fewer statutory controls to abide by. For example, you don't have to register the partnership agreement that you and your partners enter into. Additionally, when it comes to taxes, you don't have to file a return. Instead, you will claim the income on your personal taxes.