What is a Business Partnership?
A partnership is an alliance of persons (legal or physical) joined voluntarily to carry together a business with intention to profit. Depending on your objectives, you can choose the appropriate form of partnership for your business endeavor and find out the corresponding obligations they entail.
Partnerships are not consider separate legal entities, so you and your partner (or partners) personally share responsibility for all aspects of your business like:
- any losses that your business might make
- any liabilities that your business might create like bank loans or owed to suppliers etc
You and your partners also share the business’s profits, and each partner is responsible to pay the tax that is attributable to its share of income.
A partner does not have to be an actual person. For example, a limited company can also be a partner.
The number of partners is limited to 100 unless the partnership is engaged in banking activities, which in this case the number of partners is limited to 10.
What you need to do
When you set up a business partnership you need to:
- Choose a Name and seek approval from the Registrar of Companies
- Submit the application for the registration of the partnership signed by all partners to the Registrar of Companies within one month from the date the partnership was formed.
The Application for the registration of the partnership must include among other the following:
- the name of the partnership
- the purpose and duration of the partnership
- the principal place of business of the partnership
- the personal details of the partners (names, birthday, citizenship, passport number, address)
- the names of the general partners who have the power to sign on behalf of the partnership
- when applicable, a declaration that the partnership is a limited partnership
What are your responsibilities as a partner
A partnership must have at least one ‘general partner’ and one ‘limited partner’ – a partner can be an individual or a company.
All partners are equally responsible for any debts or obligations until the partnership has been registered.
As a limited partner you:
- are only liable for debts up to the amount you’ve contributed when the partnership it’s set up
- can’t manage the business
- can’t remove your original contribution
As a general partner you:
- are liable for any and all debts the business can’t pay
- have the power to control and manage the business
You must inform the Registrar of Companies about changes to your limited partnership including:
- its registered address
- its registered name
- its type of business activity
- partners’ details (for example, changes of name, new partners)
- partners’ liability (for example, if a limited partner becomes a general partner)
- the sum contributed by a limited partner
- Keep true and fair accounting records
- Prepare annual financial statements
- Submit an annual report to the Registrar of Companies within six months after the end of its financial year
- Obtain a tax id number from the Registrar of Taxation
- Register for VAT purposes if your taxable transactions exceed the threshold of €15.600 within a period of 12 months or it is estimated that it will exceed the threshold in the next 30 days
Taxation of partnerships
Partnerships are not considered as separate legal entities with separate legal personality and as such the partners are subject to taxation and not the partnership per se.
There are three different types of partnerships in Cyprus:
- General partnerships
- Limited partnerships
- Limited liability partnerships (LLPs).
In a General Partnership every partner is liable jointly and severally with all the other partners for an unlimited amount of the debts and obligations of the partnership.
A person who is admitted as a partner into an existing partnership does not thereby become liable to its creditors for anything done before he became a partner.
A partner who retires from a partnership does not thereby cease to be liable for partnership debts or obligations incurred before his retirement.
In a Limited Partnership at least one of the partners must have unlimited liability for the debts and obligations of the partnership while the remaining partners may have limited liability. Only general partners may participate in the management and operation of the partnership and be authorized to bind the partnership while a limited partner may not. (If such limited partner takes part in the management and operation of the LLP or purport to bind the LLP then he is liable for all debts and obligations of the LLP which arise for as long as he takes part in the management, as if he were a general partner).
In a Limited Liability Partnership (“LLP”), the partnership has a share capital, an LLP partner contributes to the share capital and shares are allotted to him depending on the amount contributed. It is comprised of one or more general partners who are liable for all debts and obligations of the partnership and are authorized to manage, operate and bind the LLP and one or more limited liability partners who merely contribute capital towards shares in the partnership. Limited liability partners may not participate in the management and operation of the partnership and may not be authorized to bind the partnership. Liability of the limited partners is limited up to the amount that remains unpaid, if any, for the shares held by each partner, who enjoys limited liability in the same manner as shareholders enjoy limited liability in a limited company.
Limited partnerships that either have share capital or don’t have, are not consider legal entities with a separate legal personality.