A partnership business is any business that two or more people run together to make a profit, without forming a limited company. Familiar examples include a two-person plumbing or building firm, a family farm, a GP or dental practice, a high-street solicitors or accountants, a husband-and-wife shop or restaurant and a property-letting venture between friends. The legal test is set out in section 1 of the Partnership Act 1890: partnership is "the relation which subsists between persons carrying on a business in common with a view of profit". You do not need a written agreement or any registration for one to exist. The examples below show which structure suits which kind of business.
The four types of UK partnership
| Type | Governing law | Liability | Registered at Companies House? |
|---|---|---|---|
| General (ordinary) partnership | Partnership Act 1890 | Unlimited, joint for firm debts | No |
| Limited partnership (LP) | Limited Partnerships Act 1907 | General partners unlimited; limited partners capped at their contribution | Yes |
| Limited liability partnership (LLP) | Limited Liability Partnerships Act 2000 | The LLP is a body corporate, so members are generally protected | Yes |
| Scottish partnership | Partnership Act 1890 | The firm is a separate legal person, but partners can still be pursued for its debts | No, unless it is an LP |
Examples of a general partnership business
A general partnership is the default. It arises automatically when people start trading together, so it is the most common choice for small, owner-run businesses:
- Trades. Two electricians, plumbers or decorators who share jobs, a van and the profits;
- Family businesses. A farm run by parents and adult children, or a couple running a café, guest house or corner shop;
- Small professional practices. Two physiotherapists, architects or bookkeepers sharing premises and clients;
- Creative collaborations. A band, a design duo or a photography studio that invoices as one business;
- Property ventures. Friends who buy, refurbish and let properties together. Under section 2 of the 1890 Act, simply co-owning a property "does not of itself create a partnership". There must be a business carried on in common.
The trade-off is liability. Under section 9 of the 1890 Act, every partner is liable jointly with the other partners for all the firm's debts and obligations incurred while they are a partner. GOV.UK sums it up: you and your partners "personally share responsibility" for losses and bills.
Examples of LLPs and limited partnerships
LLPs suit professional firms that want partnership-style profit sharing with corporate protection. Typical examples are law firms, accountancy practices, surveyors, architects, investment managers and larger medical practices. An LLP needs two or more people associated for carrying on a lawful business with a view to profit (section 2 of the 2000 Act). It is a body corporate with legal personality separate from its members, but for income tax its activities are treated as carried on in partnership by its members (section 863 of ITTOIA 2005). Our explainer on what an LLP is covers the structure in detail.
Limited partnerships must have at least one general partner with unlimited liability and at least one limited partner whose liability is capped at the capital they contributed (section 4 of the 1907 Act). In a private fund limited partnership, limited partners need not contribute capital at all, and their liability is limited to the partnership property available to the general partners. They are widely used for investment funds. A general partner, which can be a company, manages the fund, and investors come in as limited partners.
A partner does not have to be an individual. GOV.UK confirms that a limited company counts as a legal person and can be a partner. This is how many joint ventures between two companies are structured.
Worked example: a two-partner trades business
Amir and Beth set up as kitchen fitters. They agree verbally to split profits 60/40, and in their first full tax year the business makes £80,000. They have to do four things:
- Register with HMRC. Amir, as the nominated partner, registers the partnership for Self Assessment, and Beth registers separately as a partner. Both must do so by 5 October in the business's second tax year;
- File the partnership return. Amir submits it, showing profits of £48,000 for himself and £32,000 for Beth;
- File personal returns. Each partner files their own Self Assessment return and pays tax by 31 January;
- Watch the VAT threshold. They must register for VAT if taxable turnover in the last 12 months goes above £90,000.
Now suppose a supplier is owed £30,000 and the business cannot pay. Because the liability is joint, the supplier can look to Amir and Beth personally, regardless of their 60/40 split. That exposure is the usual reason a growing trade business moves to a limited company or an LLP. The 1890 Act's default rules apply wherever the partners have not agreed otherwise. Section 24 entitles partners to share profits equally, so if Beth later disputed the verbal 60/40 deal, Amir would have to prove it was agreed. See our guide to partnership agreements.
Naming and paperwork
A general partnership can trade under the partners' own names or under a business name, which does not need to be registered. The name must not include "limited", "Ltd", "LLP" or "plc", and it must not use sensitive words without permission. All the partners' names, and the business name if you use one, must appear on official paperwork such as invoices and letters.
Is a partnership right for your business?
Partnerships work well where the owners trust each other, the business risk is modest, and simplicity matters more than limited liability. Where the business carries significant debt, has employees or has outside investors, an LLP or a limited company is usually the better choice. For the filing side, see our guide to partnership tax returns.
Sources: Partnership Act 1890 s1, s4 and s9; Limited Partnerships Act 1907 s4; Limited Liability Partnerships Act 2000 s1 and s2; GOV.UK, Set up a business partnership; ITTOIA 2005 s863; VAT Act 1994 Sch 1.
Acumon prepares partnership and partners' returns through our Self Assessment service and advises small firms on choosing between a partnership, an LLP and a company through our accountants for small business team.