352 Chapter 12Partnership, limited liability partnership and choice of legal status
still maintaining the right to use those assets. As long as the sale of the assets would be
guaranteed to raise more than the amount loaned then the creditor has cast-iron security.
Many lenders, though, take a particularly jaundiced view of the value of business assets.
They value them on the basis that everything which could possibly reduce their value will
in fact do so. This can make it difficult for companies or LLPs without substantial assets to
raise much money by means of floating charges.Formation
A business which wants to trade immediately will have to do so as a partnership rather than
as a company or an LLP. A partnership can be created without any formalities. As soon as
two people carry on a business in common with a view to profit they will be a partnership,
whether they realise this or not. It is, however, quite likely that partners will want to have
a deed of partnership drawn up by a lawyer. If so then this too is bound to involve some
expense and delay.
Companies and LLPs are formed by registration with the Registrar of Companies.
This process generally takes about one week. However, if an extra fee is paid they can be
registered within one day. This means that any advantage partnerships once had in respect
of speed of formation is very much diminished.Formalities
Partners do not need to adhere to any formalities. There is no need for them to hold formal
meetings. This used to represent a significant advantage over companies. However, since
the Companies Act 2006 came into force private companies are not required to hold formal
meetings. Small private companies and small LLPs do not have to have their accounts
audited.Publicity
The affairs of a partnership are completely private. Like anyone else, the partners will of
course need to declare their earnings to HMRC. Beyond this there is no need to reveal their
accounts to anyone.
The affairs of companies and LLPs are much more public. Any member of the public
can inspect the annual return, the registered accounts, registers held by the Registrar of
Companies, and most of the registers which must be held at the registered office. Until
relatively recently, all companies had to publish full accounts. Small companies and LLPs
can now publish abbreviated accounts. The members are still entitled to full accounts. These
abbreviated accounts would deliver very little meaningful information to an outsider, and
so the advantage which partnerships used to enjoy in respect of keeping their financial
affairs private has been considerably diminished.
Companies and LLPs are defined as small if they have two out of three of the following
qualifications:
(i) The company’s annual turnover is £6.5 million or less.
(ii) The total assets of the company are £3.26 million or less.
(iii) The company has 50 or fewer employees.
As can be seen, these qualifications are fairly generous.