Two LTD companies enter into Partnership

**SueEllen** · 28 November 2016, 08:42

How do you get your customers?

**VectraMan** · 28 November 2016, 08:45

You could create a new Ltd. owned 50/50 by the two of you (i.e. not the companies), but that does mean you have the burden of running that company. Alternatively just create an agreement between your two companies - i.e. company A invoices the client and then company B invoices company A for 50% of the value.

Whatever you do make sure you're very clear on the terms.

**Lance** · 28 November 2016, 08:46

Originally posted by 7656 View Post

Questions:
1. What should the legal structure be for such a venture?
- LTD owned by both businesses or LTD owned by each director personally?
- LLP owned by each director personally?
2. How capital generated as a result of joint efforts will be taxed?
- are we better off with LTD or LLP tax-wise?
3. How each of the companies can protect profits/capitals they generated proving services solely?

It depends on many factors. Here are some questions back to you.
What do you want to get out of it?
Are both your goals the same?
Do you have spouses who require some form of income?
Is this simply a setup to avoid tax or is there actually a proper reason for you to join up?

As for keeping your retained profits, just keep your current LTDs as they are. The new venture could be owned by the LTDs or personally. I'd prefer the latter as it's simpler and less likely to be affected by future legislation.

You MUST get legal advice and some contract drawn up between the 2 of you. That same person will be the one to provide the advice you want. I'm not sure an accountant is going to be much help unless he's a fairly creative one.

**Fred Bloggs** · 28 November 2016, 08:59

It's all OK till you fall out. And you will................. not really a recommended way forward. You can both do everything you need to do working together and presenting yourselves jointly to customers, but I really wouldn't do what you suggest.

**northernladuk** · 28 November 2016, 09:48

Originally posted by Fred Bloggs View Post

It's all OK till you fall out. And you will................. not really a recommended way forward. You can both do everything you need to do working together and presenting yourselves jointly to customers, but I really wouldn't do what you suggest.

This. They are also your potential ex as well.

**Maslins** · 28 November 2016, 12:10

This kind of thing virtually always ends in tears. Sorry but it's true. This may be a large part of why your existing accountants might have brushed you off (apologies if we were one of them!).

Why not just get one of your companies to be the "main" company which invoices the end client, then the other one acts as a subcontractor, invoicing the main one. It does mean one company's turnover is greatly hiked (with an equivalent cost), but in practice this tends to just mean you need to take care re VAT, FRS etc.

You still need to be a bit careful with legalities/possible fall out...eg if the end client doesn't pay the "main" company, what rights does the subcontractor company have for payment etc...but these are far less severe than if you actually jointly own a business together.

**m0n1k3r** · 29 November 2016, 22:48

Originally posted by 7656 View Post

Could you please advise on the following scenario?

I run my own LTD and peovide coding and web developing services. My potential partner runs their own LTD company and also provides services in coding and web development. We look to enter into partnership and double our efforts.

Before I list some questions - we did both have run these questions past our accountants but were brushed off this seem to be out of scope of their engagement.

Each of us currently has got 1 or 2 existing clients and we want to retain profits from those clients to ourselves. However we look to share the profit generated as a result of joint efforts.

Questions:
1. What should the legal structure be for such a venture?
- LTD owned by both businesses or LTD owned by each director personally?
- LLP owned by each director personally?
2. How capital generated as a result of joint efforts will be taxed?
- are we better off with LTD or LLP tax-wise?
3. How each of the companies can protect profits/capitals they generated proving services solely?

Contractor accountants offer a low-priced, streamlined service for one-man contractor with limited companies, either no VAT or flat rate VAT, a limited number of transactions and some PAYE + dividends at a rate equivalent to approx. 2 hours of bookkeeping work per month plus annual accounts and self assessment.

1. Depends on how you intend to split profits. With an Ltd owned by both companies, you are more or less forced to distribute profits according to shareholding, and 50/50% shareholding is never a good idea. You could alternatively agree to invoice the joint Ltd for your efforts and then split the profits according to shareholding. There should ideally be a third, independent party that owns 2% so as to avoid a deadlock. An LLP with each company (not directors) as members provides the greatest flexibility, but you need a good agreement as to how profits should be split.

2. Doesn't matter if your companies are shareholders or partners. An Ltd doesn't pay taxes on dividends received from a UK company or (most) foreign companies. An LLP doesn't pay taxes, so it would be your Ltd's that would end up paying corporation taxes on revenue received before paying you dividends.

3. For this, you would need separate share classes and a good shareholder agreement if you go for an Ltd. If you instead go for an LLP you would need an equally good partnership agreement.

Two LTD companies enter into Partnership