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.
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.
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.
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.
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.
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).
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.
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.
You’ll go through either three or four steps:
Need a hand with this? See our guidance on choosing a great name for your business.
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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.
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. We’ve teamed up with Farillio to get you this free template for a business partnership agreement.
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