Is a business partnership right for you?

Partnerships are a fairly simple way for two or more people to set up a business together. The downside is that there’s no limited liability, so it means that each partner is ‘jointly and severally’ liable for all the debts of the business. In other words, if the business fails, you may end up owing a lot of money.

You might want to work with a partner because they bring capital or expertise that you don’t have on your own. It can be a lonely journey running a business and having the right partner will give you additional support.

Whilst you may have different skill sets, it’s important that you do share the same core values when it comes to making decisions together. Shared values could make collaboration much easier and may save you a few headaches.

In this form of business, each individual partner is potentially responsible for ALL the business debts. In order to guard against this, some partnerships opt for a limited liability partnership format. Or they might consider setting up a limited company where the liability is limited to the face value of the shares.

Features of a business partnership:

• Fairly simple to set up.

• Partners pay income tax on all profits.

• Unlimited liability.

Starling currently offers business accounts to limited liability partnerships (LLPs) but unfortunately we cannot yet support general partnerships.

How to set up a business partnership

Setting up a partnership is quite simple. You can just start trading as a partnership and register with HMRC. One partner must be the ‘nominated partner’ responsible for filing the relevant tax returns. It’s best to have a partnership agreement prepared by a solicitor.

A partnership agreement should cover:

• How you’ll split profits.

• How you’ll make decisions.

• What will happen if the partners can’t agree - who will have the casting vote, or how will you resolve the issue.

• What role each of you will play in the new business.

• What happens if one of the partners leaves or a new one joins.

It’s important to note that as the profits are taxed on the individual partner - they will each need to register for Self Assessment with HMRC.

It also helps to decide in advance what will happen if one partner wants to leave, or change their level of involvement or if a new partner joins the partnership. Everybody should agree how the business will be valued and how the assets will be split. Think about what will happen if one or most of the partners want to sell their share on the business?

Is a limited liability partnership right for you?

An LLP could be right for you, if you want the benefits of being a partnership AND the limited liability to protect yourselves financially. In this case the LLP is a separate legal entity.

Features of a limited liability partnership:

• Structure sits between partnership and limited company.

• Must be registered at Companies House.

• Partners pay income tax on all profits.

• Limited liability.

How to set up a limited liability partnership

An LLP needs to be registered at Companies House in a similar way to a limited company. This can be done via the Companies House website which will take you through step by step. A partnership agreement is needed as part of this process. The LLP must also register with HMRC.

Why do people choose LLPs?

Once upon a time certain professionals such as accountants and solicitors were not allowed to trade as limited companies. LLPs gave them the status of a partnership but with limited liability. Today, these professions can form limited companies - so LLPs are more unusual.

How to decide between a business partnership or LLP

LLPs are taxed in the same way as business partnerships so limited liability is the only benefit. The downside is that, like limited companies, there are a few more formalities when setting up and reporting annually to Companies House.

Other business types

If a business partnership or LLP doesn’t work for you, there are other options. Perhaps becoming a sole trader or setting up a limited company is better for you and your business idea. Find out more about these business structures in our guide on business types.