Setting Up or Altering a UK Partnership Business

Does a business partnership have to be legally formalised?

How much you need to make your UK business partnership official depends on what kind of partnership it is.

For a general partnership, you don’t need to register with Companies House. You only need to tell HMRC (the tax office) the partnership’s name and the names of all partners. It’s a good idea to write down a partnership agreement that explains how the business will run, but it’s not a legal requirement and you can do this without a lawyer. A general partnership is not a separate legal entity, meaning it’s not seen as a separate "person" by law.

For limited partnerships and limited liability partnerships, you do need to register with Companies House, just like other limited companies. This makes them more official and sets them up as separate legal entities.

What are 5 advantages of setting up a business as a partnership?

1. Shared responsibility and workload

When you set up a business as a partnership, you can share the responsibilities and workload with your partners.

This means that the tasks and decisions involved in running the business are divided among several people, which can make managing the business easier and less overwhelming for each individual. For example, one partner might handle marketing, while another takes care of finances.

2. Access to more skills and expertise

Partnerships allow you to bring together individuals with different skills and expertise.

This diversity can benefit the business because each partner can contribute their unique knowledge and experience. For instance, one partner might have strong skills in finance, while another is an expert in sales, helping the business operate more effectively.

3. Easier to raise capital

In a partnership, it is often easier to raise money because you can pool resources from all the partners.

This means you might be able to access more funds than you would as a sole trader. Additionally, partners might have their own networks and connections that can help in attracting investors or securing loans.

4. Simplicity

Setting up a partnership is generally simpler and less expensive compared to forming a company.

There’s less paperwork and fewer legal requirements to get started. For general partnerships, you don't even need to register with Companies House, just with HMRC for tax purposes.

5. Flexibility in management

Partnerships offer flexibility in how the business is managed.

Partners can make decisions together and adjust the management structure as needed. This flexibility can be beneficial as it allows the business to adapt quickly to changes or challenges without needing formal board meetings or strict procedures.

What are 5 disadvantages of a partnership?

1. Shared liability

One of the main disadvantages of a partnership is that all partners share responsibility for the business's debts and legal issues.

If the business runs into financial trouble or legal problems, each partner can be held personally liable. This means that if the business can't pay its debts, the partners' personal assets could be at risk.

2. Conflict

Since partnerships involve more than one person, there is a higher chance of disagreements and conflicts among partners.

Differences in opinions on how the business should be run can lead to disputes, which can affect the business's operations and success.

3. Shared profits

In a partnership, profits are divided among the partners according to the partnership agreement.

This means that each partner gets only a portion of the total profit, which can be less than what a sole trader might keep. Disagreements over profit-sharing can also create tension.

4. Decision-making

Decision-making in a partnership can be more complex because it requires the agreement of multiple partners.

This can slow down the decision-making process and make it harder to make quick changes or take advantage of new opportunities.

5. Risk of dissolution

If a partner decides to leave the business or if there are disagreements that can’t be resolved, the partnership might have to be dissolved.

This can lead to business disruptions and financial losses, and setting up a new partnership or business structure can be time-consuming and costly.

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How do I bring a partner into my business?

If you’re a sole trader, you'll have to form a partnership to bring a partner into your business.

There are two main types of partnerships for businesses.

1. Ordinary Partnership

In this type, you need to register all the partners with HMRC (the tax office).

One of the partners has to take charge of handling tax and accounts. It’s a good idea to write down an agreement that explains how the profits and losses will be shared among the partners. In this setup, all partners run and manage the business together.

2. Limited Liability Partnership (LLP)

This type needs to be registered with Companies House, just like a limited company.

The big benefit here is that partners are protected from personal responsibility for the company’s debts. This means if the business owes money, the partners' personal assets are generally safe.