Use of service companies in partnerships

Produced by a Tolley Owner-Managed Businesses expert

Owner-Managed Businesses

Guidance

This guidance notes looks at the use of service companies within a partnership / LLP structure and what benefits could arise together with any potential downsides and risk areas. For more detailed commentary see Ray: Partnership Taxation, Ch 23.

What is a service company?

Typically, a service company will be a limited company run alongside a partnership. The share capital may be owned by the partners personally or as a partnership asset. There may be some advantages to holding share capital within the partnership, for example, an advantageous CGT treatment if there is a change in partnership sharing ratios. See the Capital gains of a partnership guidance note.

The service company typically provides a number of services to the partnership. This may include:

•
employing staff
•
owning or renting premises and dealing with property related outgoings
•
owning equipment such as plant and machinery, motor cars etc
•
providing administrative services, and
•
other back office functions

In return, the service company will be paid a fee by the partnership equal to

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