This section outlines what partnership in a business context is, with a focus on traditional partnerships rather than Limited Liability Partnerships or Limited Partnerships (which are dealt with elsewhere).
Being in a business partnership means running a business as a self-employed individual but in conjunction with other individuals, “partners”, where all the partners share responsibility for the business. Profits are shared between the partners but each partner pays tax on their share of the profits. Individual partners must register for Self-Assessment with HMRC as soon as possible after the partnership starts trading, with the nominated partner (the partner who will be responsible for keeping business records & managing tax returns) registering the partnership vehicle as well as themselves for Self-Assessment.
A partnership will usually operate in accordance with the terms of a partnership agreement drawn up between the partners. This type of agreement is useful to set out the financial and operation parameters within which the partnership will operate and avoid potential disputes once the partnership is up and running.
A partnership can offer much greater flexibility and privacy than a limited company, but like a sole trader, greater potential rewards have to be balanced against the potentially greater personal risks of setting up in partnership, most particularly personally covering any losses the business makes.
Further details on the key aspects of setting up and operating in partnership are set out below, including the key features of a partnership, the records that need to be kept, restrictions on choice of partnership name and the issues to be covered in a partnership agreement.