Partnership Advice?

murt1987

Hi Guys,

Here's my situation: I'm considering setting up a business/company with two friends and I'm not sure whether to go down the route of setting up a Limited Company or just set up a Partnership. The business we intend to create is a video production company for corporate videos, weddings etc but this wouldn't be a full-time gig as we all have part time jobs and are still in college. Our time is limited to an extent and we certainly don't expect to be making much money to begin with as we're really just testing the waters. We don't expect to take on debt or creditors and the only cost we would incur would be the purchasing/renting of equipment at some point.

My question is this, would setting up a partnership be a better option than to create a Limited Company considering it's such a small part time business venture? I'm sure if we write up a fairly standard partnership agreement, that would specify our role's and duties within business and the share of costs involved?

Side note question, as a part time employee elsewhere, would my income tax rate change because of the 'earnings' I get from this business?

Thanks

pedroeibar1

murt1987 wrote: »

Hi Guys,

.....I'm considering setting up a business/company with two friends and I'm not sure whether to go down the route of setting up a Limited Company or just set up a Partnership.

From what you have written you have no idea of the legal standing of a partnership, thus any “standard” partnership agreement you might write most likely would be unenforceable. Ninetynine times out of 100 a partnership is the wrong route. You need a limited company with a shareholders’ agreement, setting out the who, what, where, when and why.

pedronomix

The venture is too small to take on the costs/implications of a limited company.As Pedro has pointed out, partnerships are a very dangerous minefield and should be avoided completely!
There is another way, each set up as a sole trader and you draw up an operating agreement to cover the sharing of costs, revenue and any other assets/liabilities, Include a section to set out how how anyone departs and their liabiliities or entitlements.

Any income you recieve willl be taxed like any other income exceopt you will be liable to return and pay it to Revenue yourself.

pedronomix

pedronomix wrote: »

The venture is too small to take on the costs/implications of a limited company.As Pedro has pointed out, partnerships are a very dangerous minefield and should be avoided completely!
There is another way, each set up as a sole trader and you draw up an operating agreement to cover the sharing of costs, revenue and any other assets/liabilities, Include a section to set out how how anyone departs and their liabiliities or entitlements.

Any income you recieve willl be taxed like any other income exceopt you will be liable to return and pay it to Revenue yourself.

I would agree a Ltd company is prob too much for something small like that too, and go the 'multi' sole trader route.

pedroeibar1

Pedronomix, El R,
I see where you are coming from but I still disagree. :P:)

Your suggestions will save a couple of hundred euros initially and a bit less thereafter annually. While PedroX's addresses the credit issues, IMO the suggestions lack the element of business development. The real advantage of the route you proposed – and it is considerable - is a cast-iron “shareholding” will not be defined until the operation gets underway and it will, after a year or so, be seen “who” has contributed “what” and should a decision be made to convert to LTD there will be a fair basis for division of the shares / ownership.

The business plan is to produce corporate and weddings videos. Despite what the OP says, there will be both creditors and debtors. On the wedding night I imagine the groom will have other things on his mind rather than payment! Is a corporate going to pay in advance or as soon as the filming is over and the video has not even gone into production? – one of the producers has to hire, guarantee & pay for the equipment, pay travel costs associated with a gig, time, whatever, so each will have vicarious liability, if only to the others. A pre-seeded company bank account would resolve that. (And I'd add that any joint traders bank account would, at bank insistence, be both joint & several, so that's not a nice position.)

Brand image built on past productions, clients, experience is critical to develop the business. Any corporate requiring a video will want to know with whom they are dealing (a very important factor in the “creative” sector at most times, but critical for a start-up). A website might say “Bloggs Productions” but what is behind that? Tom, Dick & Harry t/a is not a good image. So, the client thinks that they are dealing with Tom but because Tom has to do a job elsewhere, Dick or Harry turns up. With whom is the contract? Now if you think corporates are bad, wait until Harry does a wedding instead of Dick (who negotiated the deal) and I can see screams of anguish, non-payment and threats of damages, legal suits. Just look at the hissy-fits on photographer threads over in the wedding forum!

If a business is going to have any hope of success it needs an image, a brand, not just referrals like “I know a bloke who with his mates does videos”. Build a brand around a company, otherwise go it alone and tell the mates they will be given X% commission on referred business.

pedroeibar1

pedroeibar1 wrote: »

Pedronomix, El R,
I see where you are coming from but I still disagree. :P:)

Your suggestions will save a couple of hundred euros initially and a bit less thereafter annually. While PedroX's addresses the credit issues, IMO the suggestions lack the element of business development. The real advantage of the route you proposed – and it is considerable - is a cast-iron “shareholding” will not be defined until the operation gets underway and it will, after a year or so, be seen “who” has contributed “what” and should a decision be made to convert to LTD there will be a fair basis for division of the shares / ownership.

The business plan is to produce corporate and weddings videos. Despite what the OP says, there will be both creditors and debtors. On the wedding night I imagine the groom will have other things on his mind rather than payment! Is a corporate going to pay in advance or as soon as the filming is over and the video has not even gone into production? – one of the producers has to hire, guarantee & pay for the equipment, pay travel costs associated with a gig, time, whatever, so each will have vicarious liability, if only to the others. A pre-seeded company bank account would resolve that. (And I'd add that any joint traders bank account would, at bank insistence, be both joint & several, so that's not a nice position.)

Brand image built on past productions, clients, experience is critical to develop the business. Any corporate requiring a video will want to know with whom they are dealing (a very important factor in the “creative” sector at most times, but critical for a start-up). A website might say “Bloggs Productions” but what is behind that? Tom, Dick & Harry t/a is not a good image. So, the client thinks that they are dealing with Tom but because Tom has to do a job elsewhere, Dick or Harry turns up. With whom is the contract? Now if you think corporates are bad, wait until Harry does a wedding instead of Dick (who negotiated the deal) and I can see screams of anguish, non-payment and threats of damages, legal suits. Just look at the hissy-fits on photographer threads over in the wedding forum!

If a business is going to have any hope of success it needs an image, a brand, not just referrals like “I know a bloke who with his mates does videos”. Build a brand around a company, otherwise go it alone and tell the mates they will be given X% commission on referred business.

All good points, I tip my hat to you sir.

pedronomix

Were this a proper full-on start up, perhaps pedroeile! but here we are talking about 3 students all with part-time jobs and this gig. It is a toe dipping excercise to see if the idea has legs, they the ability to grow it and get on amongst themselves. On this occasion, I will stick with my suggestion. If it goes anywhere interesting, Pedro's points become most germane!

pedronomix

pedronomix wrote: »

Were this a proper full-on start up, perhaps pedroeile! but here we are talking about 3 students all with part-time jobs and this gig. It is a toe dipping excercise to see if the idea has legs, they the ability to grow it and get on amongst themselves. On this occasion, I will stick with my suggestion. If it goes anywhere interesting, Pedro's points become most germane!

Thats where I was coming from too, but might be a bit of a disservice to the OP!

pedronomix

Deleted User wrote: »

Thats where I was coming from too, but might be a bit of a disservice to the OP!

Fortunately for me, I don't do Nice, so am unemcumbered by any need for sensitivity. I am more of a "don't give me the labour pains, just gimme the baby" kinda guy!

Atomico

Doubt a couple is going to be looking to have a few lads doing a few casual video jobs on the side shooting their wedding day! They would be looking for an established company or freelancer, with a website, logo, business address, etc. As mentioned it would be different if you were happy just doing jobs at mates rates, but if you want to build an actual business you will probably need to form a company fairly soon.

A good option could be to do some small jobs to sound things out and see how you work together, with agreements in place first around share of payments and all the other aspects already mentioned. This way you could see if there is real potential before going official with a company setup so early on.

pedroeibar1

pedronomix wrote: »

Were this a proper full-on start up, perhaps pedroeile! but here we are talking about 3 students all with part-time jobs and this gig. .......

Hmmmm. Bit old for a student, at 28? But the real point is if they are attempting to build a business, it should be done right, not in a half-assed way. Otherwise they might as well be off in the Blue Lagoon!

pedronomix

pedroeibar1 wrote: »

Hmmmm. Bit old for a student, at 28? But the real point is if they are attempting to build a business, it should be done right, not in a half-assed way. Otherwise they might as well be off in the Blue Lagoon!

A rather weak riposte, I fear!! But then we are both always looking for the last word!!

Take2Sean

Who cares what the company structure is going to be...the real question is do you really want to be getting into a partnership. Dangerous territory and you'll end up falling out with yourself not to mind the other partners. Small or large it can be disaster...ask anyone that's been in one most have been burned...

pedroeibar1

Take2Sean wrote: »

Who cares what the company structure is going to be...the real question is do you really want to be getting into a partnership. Dangerous territory and you'll end up falling out with yourself not to mind the other partners. Small or large it can be disaster...ask anyone that's been in one most have been burned...

Almost two weeks old, a dead thread. However, I strongly suspect that you have absolutely no idea of the difference between a company and a partnership.

Take2Sean

Incorrect...

G'luck

pedroeibar1

Take2Sean wrote: »

Incorrect...

G'luck

Sic transit consciencia Seani. Do explain the difference.....

Take2Sean

I strongly suspect you have never been in a partnership whether incorporated or not...you'd have understood my point if you have been.

pedroeibar1

Take2Sean wrote: »

I strongly suspect you have never been in a partnership whether incorporated or not...you'd have understood my point if you have been.

Yep. Thought as much, correctly guessed that you have no idea.:rolleyes:
(In Ireland we do not have the option of incorporating partnerships.) Go look it up.:) The Partnership Act 1890 and the Limited Partnerships Act 1907.) FWIW I have several highly successful partnerships behind me, mainly LLP in another jurisdiction.

Take2Sean

Well done however a limited company registered with 3 33% shareholders as directors could be, much of the time, considered a quasi partnership and you can run into the same problems..again my point was about the idea of partnership in general not the corporate structure or lack of as you have pleasantly pointed out.

I'm glad your LLP's are going well.... Keep rolling your eye's bosco..

pedroeibar1

Oh dear, wrong again.

Take2Sean wrote: »

Well done however a limited company registered with 3 33% shareholders as directors could be, much of the time, considered a quasi partnership…

Wrong, it cannot be considered as anything other than a company with shareholders and directors, each of which have different rights, responsibilities and is governed by a totally different body of law.

Take2Sean wrote: »

and you can run into the same problems.

Wrong, except for the arguments between those in the business, the problems are considerably different. A partnership does not have a separate legal entity, which means (should the need arise) that the partners will be sued individually or collectively. Add to that the fact that each partner has unlimited liability for the debts of the entire partnership - including the creditors. That does not happen to shareholders in a limited company or ( in almost all cases) to its directors.

Take2Sean wrote: »

Keep rolling your eye's bosco..

My eyes will roll and I will smile for as long as those in a hole keep digging. Now go away and read post #2

Take2Sean

Lol if you're completely right and it cannot ever ever be argued otherwise in court by an angry partner from what you've said above then I wish you were my solicitor. �� Best of luck with the condescending people bashing. oh and I hope that limited liability keeps working out for you. The rest of us that have bought and sold business around the world including Ireland will continue to scrape our knuckles off the ground and scratch our arses being stupid while you decide what is and isn't possible.

Finally, you still miss the entire point of my original post.....starting a business with friends will usually end in the loss of those friends. Go it alone and hire people to do the work they would have done. You'll be happier in the long run..

pedroeibar1

Take2Sean wrote: »

Lol if you're completely right and it cannot ever ever be argued otherwise in court by an angry partner from what you've said above then I wish you were my solicitor. �� Best of luck with the condescending people bashing. oh and I hope that limited liability keeps working out for you. The rest of us that have bought and sold business around the world including Ireland will continue to scrape our knuckles off the ground and scratch our arses being stupid while you decide what is and isn't possible.

Finally, you still miss the entire point of my original post.....starting a business with friends will usually end in the loss of those friends. Go it alone and hire people to do the work they would have done. You'll be happier in the long run..

Still digging. Just stop.
No, a business started by friends is not destined to fail particularly if the business is structured properly, with a shareholders’ agreement. (Read post#2 again)
A business started by friends has several advantages, among them additional cash, business acumen, time, local knowledge, skills, contacts, each participant can use the other as a sounding board for ideas, etc., etc. If your point is correct, why are there so many companies out there that are not in single ownership? And no, I’m not a solicitor, but I do know enough to discern that solicitors love people like you for the fees they generate.:D

Take2Sean

Actually you're right. No downsides to starting a business with friends at all because we all know out of 3 people they'd all have equal ability, work ethic, cash & skills. There'd be no weak link and no likely clashes at all. And you should become a solicitor you'd be very good at it.

I tend to generate surprisingly low legal fees, in my experience dead certain people who can never ever consider an opposing view or that they may be wrong are the ones who generate the best fees. Anyway best of luck.

dbran

Take2sean and pedroeibar1

Can you guys just agree to differ and move on.

Thanks

Dbran

pedroeibar1

dbran wrote: »

Take2sean and pedroeibar1

Can you guys just agree to differ and move on.

Thanks

Dbran

For those who actually are interested in why I regard partnerships as wrong :--

The word “partner” is possibly the most misunderstood and misused word in the business vocabulary. Invariably it is incorrectly used to describe a co-shareholder in a company.

As a generality, partnerships are unsuited to most business activities, and in Ireland have long fallen out of favour. For example architects regularly used them, but the crash in 2007/8 showed how flawed the partnership model was and those archi firms that survived rapidly incorporated and now are Ltd. companies. (Bloxhams, the stockbrokers is another good example of the dangers of a partnership - go Google it and frighten yourself on ever using a partnership structure!)

Interestingly, when two or more people formally or informally join together in a business venture without forming a company, they can be deemed to be a partnership and are subject to the Partnership Act, 1890. That's not a bad law, but a rather antiquated one and drafted for people who stood at high desks in frock coats, tight trousers, tall hats, wrote with dippy pens and were not good with razors!

What many today do not realise is that a sole-trader type business (e.g. a shop) involving family members working in the business could be construed as a partnership if no company has been created. That is not a happy place to be unless you fully understand the position on your liabilities and are happy to accept it. I would not be! Why? Because..... a partnership does not have its own separate legal personality, so all partners are jointly liable for the contractual obligations of the partnership and in certain situations can be jointly and severally liable for its debts. That means the guy with the most money is first to find his neck on a block. This risk can in some circumstances be reduced by forming a “limited partnership” (governed by the Limited Partnerships Act 1907) under which a limited partner will not be liable for the debts or obligations of the partnership beyond the capital s/he contributed. HOWEVER if a limited partner takes part in the management of the partnership, s/he could lose the limited liability and be liable for all debts and obligations of the firm incurred for the period while s/he so takes part in the management.

Partnership Advantages – There can be certain tax, accounting and non-disclosure advantages (e.g. not filing financials). From memory the advantages are mainly equine industry related.

Partnership Disadvantages – Partnerships have considerably more onerous liability for a business person when compared to the protection afforded by a Limited liability company structure. Exiting a partnership is not easy as the only "purchaser" of your role must be the other partners. "Partnerships" cannot borrow, the loan is in the joint & several names of the partners. Partnerships cannot own assets, they are owned by th epartners individually. Also, there can be a negative impact on succession planning structures, particularly if no formal/written partnership agreement is in place. The list goes on........

Why bother with a partnership? – I would not use a partnership unless I was specifically instructed to do so by a senior accountant/lawyer. Even then I would question it robustly and under partnership law as it stands in Ireland I would be dragged into one kicking and screaming!

For more info see here https://www.cro.ie/Registration/Limited-Partnership

The above is not legal advice, but it is fairly accurate. Now that I think of it, there should be a sticky on sole traders/ business names / Ltd companies /partnerships to stop nonsense posts.