The short version: A partnership is a business owned and run by two or more people. Unlike a limited company, there’s no separate legal entity. The partners share the profits and each pay tax on their share.
How is it different from a limited company?
A partnership doesn’t pay Corporation Tax. Instead, the partnership files a partnership tax return, and each partner files their own Self Assessment declaring their share of the profits. They pay Income Tax and National Insurance personally.
How are profits shared?
However the partners agree. It could be 50/50, or based on who does more work, or who invested more capital. The partnership agreement should set this out clearly.
What about liability?
In an ordinary partnership, partners are personally liable for business debts. If the business owes money, creditors can come after your personal assets. A Limited Liability Partnership (LLP) offers some protection, but has more formalities.
Is it right for you?
Partnerships are simple to set up and run. But the lack of liability protection and the way profits are taxed means they’re not always the best structure.
Thinking about setting up a partnership? Let’s discuss whether it’s the right choice for your situation.
