If you have a business idea, but you’re not keen on going it alone, finding out what is a partnership and the pros and cons associated with it may be a good step for you.
A business partnership is a little like a marriage and it’s a good idea to make sure you’re really confident of your relationship with your proposed business partner before you jump in. You may find your ideal business partner in your family or circle of friends, a work colleague, supplier or customer, or they could be someone you’ve searched down for a specific skill set.
In a business partnership, each partner shares responsibility for the business. The profits are shared, as is liability. And while a business partnership doesn’t require any legal written agreements it’s always recommended to make your business arrangements official and to get them down on paper with either a solicitor or an accountant.
To set up in partnership one person must be selected as the ‘nominated partner’. The nominated partner must register the partnership and register for Self Assessment tax with HMRC. Other partners must then register for Self Assessment tax as well.
As with being a sole trader, there’s no need to register with Companies House if you’re in a partnership, but there can be added advantages to setting up as a limited company and it’s worth investigating all options.
What is a partnership – the benefits
Setting up in a partnership you’ll share a lot of the business load as well as sharing your ideas, skills and expertise. You’ll also benefit from:
Sharing the load
Being in business on your own can be an emotional strain. With a partner you’ll have a sounding board and someone to take part ownership in decision making too.
A cut of the costs
As a partner in business, you’ll only need to foot your portion of the bills, making start up more economical for you.
You may have similar contacts. Especially if your partner has worked with you in the past, and they’ll bring their own network of business associates with them too – all helping to get business going.
With more than one person at the helm, if you’re ill or if you’d like to take a holiday, there’ll be someone else to keep things running smoothly.
Working in partnership and the challenges ahead
While working in a partnership you don’t need to worry about registering with Companies House, actually there’s still a lot of paperwork involved to ensure you protect both yourself and your partner, and your business idea. Other risks include:
If your business doesn’t turn out as you’d hoped your liability won’t be limited. And if you haven’t drawn up proper contracts with your partner they may not be there to back you up when the chips are down.
If you’ve gone into partnership with a friend or family member, or someone else you know, there is a real risk that you’ll have opposing ideas that mean the end of your business and your relationship.
Follow the leader
Working out who will take the lead in your business can prove testing – in a partnership you need to try to ensure all things remain equal.
If you choose to include partners in your business you’ll also need to share the profits, while you’ll still be personally responsible for any losses the business makes.
Regulations for partnerships
While you don’t need to register with Companies House if you’re setting up in partnership you do need to register with HMRC and keep formal records of your business finances, including your income, expenses and your profits. Of course, you’ll also need to make a joint decision on what to do with your profits each year.
As the nominated partner, you’ll be responsible for sending the partnership’s tax return as well as your Self Assessment return and all partners are responsible for paying their income tax and National Insurance contributions (NICs).