Scottish Limited Partnerships and Limited Liability
Posted 27 Jan 16
Partnerships, also known as firms in Scotland, are one of the earliest business models. There are certain advantages which come with forming a Scottish Limited Partnership that other partnerships do not offer.
Since it is one of the most common options a lot of business owners consider to use today, it is important that you are understand the way in which this business model functions. The type of partnership structure you choose to run your business through determines the legal and tax responsibilities of the business as well as those running it.
What Does a Limited Liability Mean in Scottish Limited Partnership?
A limited partnership is a partnership at least one general partner, who has unlimited liability in terms of debts and obligations of the LP, and one or more limited partners, who contribute to the LP in a form of capital (either cash or property).
One of the major reasons why so many business owners choose to choose a limited partnership as the trading model is its limited liability. Each of the limited partners is covered by the amount of contribution he/she made to the LP, which means that limited partners benefit in the same way from the limited liability status of SLP as shareholders in a limited company.
A SLP can be formed when two or more people decide to run a business together with the objective of making a profit. The ‘people’ can refer to individuals as well as other legal entities, such as companies or trustees.
Separate Legal Personality
What makes a Scottish Limited Partnership such a unique structure is that they operate as separate legal entities, distinct from their partners. This mean the partnership can enter into contracts as itself, as well as own property and borrow money. This advantage doesn’t appear in partnerships in England. Moreover, since the SLP exists as a separate legal personality, it may sue or be sued in the firm name.
In addition, a Scottish Limited Partnership can be treated in case of certain jurisdictions as a foreign entity, distinct from its partners, which can result in tax benefits not available in any other business models.
If you are a partner in a Scottish Limited Partnership, in the USA you can choose to make “check-the-box” elections in respect of the LP, which allows the partners to decide whether they prefer the partnership to be taxed as a partnership or a corporation. Such flexibility is hugely attractive to overseas business owners and can provide significant benefits within international groups and allow efficient tax planning between jurisdictions even when the group has no other connection to Scotland.
In order to be active, SLP must be registered ad incorporated by completing and filing the registration forms with Companies House.
The flexibility, tax transparency and separate legal personality are the most significant advantages of trading as a Scottish Limited Partnership, however, there are other benefits you can gain from this model. If you are considering SLP as the structure for your business, contact us today at Tawanda Accountants and our experts will be happy to help with each stage of the process.