What’s a general business partnership and is it right for me?

Going into business with a partner (or partners)? You’ve probably got a lot of items on your to-do list, and deciding on your company’s legal structure is a big one.

A general business partnership is a popular option for setting up shop. How does it work and who's it good for? Read on to find out.

• What is business turnover?
• Setting up a limited company: a step-by-step guide
• How to write a business plan
• How to register as self-employed with HMRC

Why might I want to set up a general business partnership?

For starters, it’ll appeal if you already know for sure that you don’t want to go it alone as a sole trader or limited company.

And beyond that, a general business partnership tends to suit founding teams who want to keep things as simple as possible, are comfortable being on equal footing with each other, and don’t feel the need to have lots of legal protection in place. Basically, you’re relying on trust to do a lot of the heavy lifting.

What is a general business partnership?

You could think of it as the multi-person equivalent of setting up as a sole trader.

A general business partnership is where you and your business partner(s) personally share all the responsibility for – and with – your business.

This includes the rough and the smooth. You have equal share of the business’s profits, for which each partner pays tax on their share individually through Self Assessment. You share the business expenses, from materials to marketing. And you share the burden of any losses your business makes and any legal issues that arise.

How to set up a business partnership?

You’ll go through either three or four steps:

1. Choose a name for your business

Need a hand with this? See our guidance on choosing a great name for your business.

We also have a light-hearted Business Name Generator that you can use for inspiration.

2. Choose who’s going to be your ‘nominated partner’

This might be the person who’s most spreadsheet savvy, the person with the most time on their hands, or the person with the most attention to detail.

3. Register a partnership with HM Revenue and Customs (HMRC)

• remember, each partner has to register as an individual, and the nominated partner also needs to register the partnership at large
• it’s usually quickest to do both of these things online using the government’s website. Or you do it by post if you’d rather – you’d need to use form SA400 to register business partnership, and form SA401 to register as a partner
• this page on gov.uk has all the details

4. Only if you need to (or want to): register for VAT

• if your business partnership’s VAT-taxable turnover is going to exceed £85,000 a year (as a running total, month by month, looking back over the previous 12 months), you must register for VAT. This means you’ll submit VAT returns on top of your Self Assessments, and you’re required to use accounting software that meets the government’s requirements for Making Tax Digital
• not sure if your turnover will top that? You can always leave it for now, and register later on
• turnover likely to be below £85,000 a year, but you want to be able to reclaim VAT on your business costs? Anyone can choose to register for VAT voluntarily too

What are the advantages and disadvantages of a general business partnership?

All of the pros and cons are tied to the lack of the “limited” element, meaning you’ve got a reduction in the level of complexity but also the level of protection if things go off the rails.

First, the main advantages:

Minimal admin hassle – a general business partnership is the easiest way to go into business with someone else. Because each partner is self-employed, any admin during setup and ongoing at the company level is kept to a minimum.

Quick to get going – you’ll be up and running much faster than if you chose to set up your business as an LLP or limited partnership.

Access to profits – unlike the alternatives, where cash is retained in the business unless it’s paid out as salaries or dividends, in a general business partnership you’re fairly free to do what you want with the profits (remember, there are no shareholders to answer to).

Low formality – a general business partnership is a much less formal arrangement than a LLP or limited partnership. To a degree, this is a matter of a personal preference. Whether it makes sense for you or not depends on the nature of your business and on the relationship you have with your business partner(s).

And the main disadvantages:

Unlimited joint liability – in the eyes of the law, as a general partnership, you and your partner(s) and your business are essentially one and the same. This means that if your business fails, your personal finances and capital assets (such as your home) could be on the line. And if your partner can’t pay, you’re responsible for their share of the losses as well as your own.

Potential for conflict – in a general business partnership, you’re all on equal footing. Of course, when things are going well, this can be an advantage, not a disadvantage. But if you find yourselves struggling to agree on the direction of the business (or experiencing any other issues related to control and differences in opinion), the lack of hierarchy can present a challenge.

Not as “serious” – this is the flipside of the lack of formality. For example, if you’re in an industry where your clients and customers have to do a lot of due diligence, and they want to be able to look you up on Companies House to check your company history and performance, they won’t be able to do so.

Less security – if you or any of your other partners quit, the partnership dissolves.

What responsibilities do business partners have in a general partnership?

In a general partnership, all the business partners are self-employed. This means that every individual has to register with HMRC and complete their own personal tax return through Self Assessment.

And if you’re the ‘nominated partner’, you’re responsible for a few extra things on top. You’ll register your partnership as a whole for Self Assessment, you’re in charge of keeping the partnership's business records, and you’ll be managing and submitting the partnership’s tax return with HMRC.

Are there other types of business partnership structures?

Yes. As well as the general business partnership model we’re focusing on in this article, there are also limited partnerships and limited liability partnerships (LLPs). All three options have different pros and cons, different processes, and different legal requirements.

What is a strategic partnership?

Outside of formal legal structures, you could start a strategic partnership with another business.

A strategic partnership is simply a relationship that you have with another business that’s mutually beneficial. There’s no need to complete formal paperwork, agreements, or contracts, but they can help (especially if there’s a financial arrangement in play).

Strategic partnerships have to make sense for the businesses involved. Can you trust the other party? Are they reliable and do they fit with your business’s brand values?

It’s important that the relationship is reciprocal. For example, a pub with a function room might open the space for a local yoga teacher who needs a venue to run classes from.

The yoga teacher doesn’t have to spend lots of money to rent a studio and benefits from the pub’s advertising. The pub will attract business from people who want lunch and a drink after the class.

Have a think about any businesses in your area that might want to enter local strategic partnerships. Why not reach out to them and come up with a plan?

Is there any legal paperwork to take care of, besides setting up with HMRC?

No, not in a general business partnership. That said, you might still find it helpful to agree a few points in writing with your partner(s) about the running of your business.

If you decide against a general business partnership, and choose instead to set up as a limited partnership or LLP, you’ll definitely want an agreement in place.