What is a Business Partnership?
A business partnership is an alliance of persons (legal or physical) joined voluntarily to carry together a business with the 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.
Setting up a Business Partnership
Partnerships are not separate legal entities, so you and your partner (or partners) personally share responsibility for all aspects of your business, such as:
- 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 do 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 business partnership must include among others the following:
- the name of the business partnership
- the purpose and duration of the partnership
- the principal place of business of the partnership
- the personal details of the partners (names, birthdays, 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 business partner?
A business 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.
Limited partners
As a limited partner you:
- are only liable for debts up to the amount of your contribution to the partnership
- can’t manage the business
- can’t remove your original contribution
General partners
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
Which are the Reporting obligations of a Business Partnership?
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
Compliance obligations
- 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 if you estimate that it will exceed the threshold in the next 30 days
Taxation of business partnerships
Business Partnerships are not 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 business partnerships in Cyprus:
General partnerships
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 a partner in 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.
Limited partnerships
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 can bind the partnership while a limited partner may not. (If such limited partner takes part in the management and operation of the LLP or purports 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).
Limited liability partnerships (LLPs).
In a Limited Liability Partnership (“LLP”), the partnership has a share capital, and the LLP partners contribute to the share capital. The shares are allotted to partners in proportion to their contribution. It can have one or more general partners who are liable for all debts and obligations of the partnership. The partners 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 bind the partnership. Liability of the limited partners is limited up to the amount that remains unpaid, if any, for the shares each partner holds, 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 legal entities with a separate legal personality.