Forming a Business Partnership

If you’re considering forming a business partnership, you will be in good company. In the UK, there are currently over 410,000 business partnerships in operation.

A business partnership is usually formed when two or more companies or individuals come up with a written agreement to join forces. This legal relationship means that any profits or losses are shared between the partners.

The below guide will help you learn how to form a business partnership and the important considerations to take during the process.

What Types of Businesses Form As Partnerships?

Businesses that best suit being structured as a partnership are those that benefit from shared expertise. Common examples of professional partnerships are solicitors, dentists and doctors.

It should go without saying, but as partners are solely responsible for any bad business dealings or debt that they may incur when forming a business partnership, make sure that you choose a partner that you trust with your business, your credit score, and your reputation.

What Are the Different Types of Business Partnerships?

In the UK, there are three main types of business partnerships:

1. General Business Partnerships

The simplest partnership structure is a general business partnership — typically formed by sole traders who decide to join forces. A business partnership doesn’t have legal status. It is a simple agreement between two or more people to work together. The partnership must be registered with HMRC and each member of the agreement must complete their tax return and register for a self-assessment.

2. Limited Partnership (LPs)

A limited partnership consists of two general partners and one or more limited partners. It is common for the limited partners and the business to be managed by one general partner. The management of the partnership is not part of the limited partner’s role and their investment in the business limits their liability. 

3. Limited Liability Partnership (LLPs)

A limited liability partnership (LLP) is more closely related to a limited liability company (LLC) than a limited or general partnership. Groups of professionals often form an LLP to save money and pool their resources. Partners in an LLP also have limited liability. 

Advantages and Disadvantages of Forming a Business Partnership

Advantages of Forming a Business Partnership:

• Partnerships can typically raise more finance than sole traders. Sole traders are less likely to be able to borrow money from banks as they see multiple partners as a form of security.

• The more partners, the more skills a business has. For example, a partnership running a dog grooming business might have some partners who are excellent groomers while other partners may have excellent marketing skills.

• The responsibility and workload can be divided up between partners. This is not the case for sole traders who take sole responsibility.

Disadvantages of Forming a Business Partnership:

• Profits must be shared with others. You have to decide on how you value each other’s time and skills. What happens if one partner can put in less time due to personal circumstances?

• Since decisions are shared, disagreements can occur. A partnership is for the long term, and expectations and situations can change, leading to the dissolution of the partnership.

• Depending on the type of business partnership you enter, you may be personally responsible for any actions brought against the company. If your partner makes a mistake, you could be liable as well. Liability is a big factor in a partnership, so you must trust your potential partner and enter a partnership that protects your best interests.

Forming a Business Partnership

Partnership businesses can be very attractive to business owners because of how simple they are to set up.

A partnership might be perfect for you, as long as you are okay with sharing unlimited liability. Some companies, such as a photography business, may not have as much need for liability protection as others, like a dentist.

To form your business partnership, our formation application process is entirely online and takes just minutes. Your business partnership registration generally takes between three to six hours, depending on the amount of work being carried out by Companies House on that day. Our experts will also help you register the business for self-assessment with HMRC — you must also register separately as an individual — and register the business for VAT if you expect to have an annual turnover of more than £85,000.

Are you ready to start your business partnership ? We’ll secure your business name and get your company registered fast so you can start doing what you love from home.

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