Set up and register a partnership

Set up and register a partnership

This guide looks at the requirements that ordinary partnerships have to meet.

A partnership is a relatively simple and flexible way for two or more people to own and run a profit-making business together. Social enterprises and other non-profit making organisations should not use this business structure.

Unlike the shareholders in a limited company, the members of a general partnership have no financial protection if the business runs into trouble – each partner is responsible for the debts of the partnership as a whole. This means that each partner’s personal assets may be at risk if the business fails.

Disputes between partners can cause difficulties, and the partnership may have to be dissolved if one of its members resigns or dies. It’s possible to resolve these issues in advance by drawing up a deed of partnership. It is a good idea for each partner to get legal advice before finalising their level of responsibility in a deed.


The officers of a partnership

Any group of people who want to set up a profit-making business together can form a partnership. However, if a member of a partnership is under the age of 18, they cannot be legally bound by the terms of the partnership agreement.

It is also possible for companies and limited liability partnerships to be members of a partnership.

How many officers can a partnership have?

Forming a partnership allows two or more people to set up in business together, sharing profits, managing burdens and risks.

The rights and responsibilities of partners

Partners normally share in both the responsibilities of running the business and the profits or losses that it makes. However, their precise rights and responsibilities will depend on:

  • what type of partner they are
  • any partnership agreement or ‘deed of partnership’ that they have entered into

Types of partner

There are three main types of partner, each of which has different rights and responsibilities.

General partners invest in the business, take part in running it and share in its profits. Each general partner is fully liable for any debts that the partnership may have. This means that they could lose more than their initial investment in the business if it runs into trouble, and that their personal assets could be at risk. Every ordinary and limited partnership must have at least one general partner.

Limited partners are not permitted to participate in the day-to-day running of the business. Their debt is limited to the amount of their initial investment.

Sleeping partners invest money in the business and share in its profits, but do not take part in running it. Like general partners, they are fully liable for the partnership’s debts.

Limited partnerships and limited liability partnerships

For information about setting up limited partnerships and limited liability partnerships, see our guides on how to set up and register a limited partnership and set up and register a limited liability partnership (LLP).

Companies and limited liability partnerships (LLPs) as members of partnerships

As well as individuals, other legal entities – such as companies and LLPs – can also be members of partnerships. They have the same rights and responsibilities within the partnership as other partners. See the page in this guide on tax matters of a partnership.

Partnerships whose members are all companies have to prepare ‘partnership accounts’ and send them to Companies House each year. Members of such partnerships must attach a copy of these documents to their own company accounts when they submit them to Companies House.


Setting up a deed of partnership

A deed of partnership is a legally binding agreement between partners who are in business together. It describes how the partnership will be run and the rights and duties of the partners themselves.

It’s not necessary to have a deed in order to set up a partnership, but it’s a good idea, as it can help to prevent misunderstandings and disputes. It may be a good idea to enlist a solicitor to ensure that each partner understands their responsibilities before the deed is finalised.

As well as giving basic information about the partnership, such as its business name and the names of the partners, the type of business and business address, the deed will usually set out:

  • the amount of capital that each partner is to contribute to the business
  • the way in which partners will share profits or losses, and whether any of the partners should be paid a salary
  • working arrangements, such as how much time each partner should contribute to the business, who does what management tasks and what type of decisions need collective agreement between the partners 
  • changes to the partnership, such as how new partners can be appointed and what happens if a partner dies or wishes to leave

If the partnership does not have a deed, it will be governed by the terms of the Partnership Act 1890. This does not offer solutions to many of the problems that can arise and may not suit the way that you and your partners want to work together. Read about the Partnership Act 1890 on the HM Revenue & Customs (HMRC) website.


Naming your partnership

A partnership can trade under the names of the partners, ‘Wright, Brown and Ali LP’, for example, or it can use another business name – such as ‘Fantastic Design Solutions Limited Partnership’.

If your trading name does not include the partners’ names, you must still make sure that your business website and stationery – such as letters and invoices – display all of their names as well as the trading name – for example, ‘Wright, Brown and Ali, trading as Fantastic Design Solutions Limited Partnership’.

If there are more than 20 partners then the business website and stationery do not have to list them, but they must show the address of the partnership’s principal place of business.

The trading name should not be the same as, or too similar, to that of any existing business, and it should not contain words that people might find offensive or misleading.

For more information see our guide on how to choose the right name for your business.


Tax matters of a partnership

Income Tax and Capital Gains Tax

The profits and gains of the partnership are shared among the partners. Each is personally responsible for paying tax on their share.

The nominated partner must register the partnership for business taxes with HM Revenue & Customs (HMRC). They can do this online.

Each partner must also register themselves for Self Assessment and National Insurance. The partnership and each partner will each then receive their own Unique Taxpayer Reference for Self Assessment. HMRC will then set up the right tax and National Insurance records for both the partnership and partners.

Register online for Self Assessment and National Insurance Contributions on the HMRC website- Opens in a new window 

Find out more about how to register partnerships and partners in our guide on registering for Self Assessment.

Every year each individual partner will need to complete a Self Assessment tax return to show the profits they get from the partnership.

The partnership should appoint one of its officers – the nominated partner – to fill in the Self Assessment Partnership Tax Return and send it to HMRC. This includes a Partnership Statement, which shows how profits or losses have been divided among the partners. The nominated partner should also ensure that all other officers are given copies of the Partnership Statement to help them complete their own tax returns. Although the nominated officer has responsibility for the Partnership Tax Return, all the partners are jointly liable for any penalties resulting from it being submitted late or incorrectly.

One of the easiest ways to send a tax return is online. See our guide on completing your tax return (partners and partnerships).

National Insurance contributions

As well as being responsible for their tax, individual partners are also responsible for paying their own National Insurance contributions (NICs). Partners normally have to pay Class 2 National Insurance contributions. If their annual profits are over a certain amount they also pay Class 4 contributions. For more information, see our guide on self-employed tax and National Insurance.

Corporation Tax

If partners are companies, they must pay Corporation Tax on their profits from the partnership, and should record the relevant figures on their Corporation Tax return.  For more see our guide introduction to Corporation Tax.

VAT

If the partnership has – or expects to have – turnover of more than £73,000, it will need to charge VAT to its customers and pass this on to HMRC.

PAYE (Pay As You Earn) for employers

Partnerships with employees will need to collect and pay income tax and NICs, which will mean operating a PAYE (Pay As You Earn) system. See our guide on PAYE for employers: the basics.

Construction Industry Scheme

If the partnership is a contractor and/or a sub-contractor in the construction industry, you must also register with the Construction Industry Scheme.

For more information, see our guide: what is the Construction Industry Scheme?


Checklist: setting up a partnership

In order to set up business as a partnership there are certain things you need to do – some must be done as a group and others as individual partners. You should:

  • Display all the partners’ names at all your business premises together with the address to which official documents should be sent.
  • Display all the partners’ names on your business website and stationery, including letters, invoices, receipts and cheques along with your principal place of business. If the partnership has more than 20 partners you need only display your principal place of business.
  • Register the partnership, and each partner, for Self Assessment with HM Revenue & Customs (HMRC).
  • Contact HMRC to register your partnership for VAT if you expect a turnover of more than £73,000 a year.
  • Register with HMRC for PAYE (Pay As You Earn) if the partnership employs staff.
  • Register with HMRC for the Construction Industry Scheme if the partnership is a contractor or sub-contractor.

It’s worth remembering that this is just a start. As an ongoing business, your partnership will have many other legal and tax obligations to bear in mind.

Every effort has been made by the author(s) to ensure this article’s accuracy but it does not constitute legal advice tailored to your circumstances. If you act on it, you acknowledge that you do so at your own risk. We cannot assume responsibility and do not accept liability for any damage or loss which may arise as a result of your reliance upon it.