# What Is a Business Partnership? > A business partnership is a structure where two or more people run a business together and share its profits. This UK guide explains how partnerships work, the tax treatment, liability, and why a partnership agreement matters. *Section: Business — By Marcus Vale (Editor-in-Chief & Business & Markets Editor) — Published August 12, 2023 — 6 min read* Canonical URL: https://dailyjunction.co.uk/business/what-is-a-business-partnership Tags: business partnership, self-employment, HMRC, business structure, business ## Key takeaways - A business partnership is two or more people running a business together and sharing its profits. - In an ordinary partnership the partners share unlimited liability for the business's debts. - The partnership itself does not pay tax — each partner pays Income Tax and National Insurance on their share of profits. - A written partnership agreement is strongly advised to set out profit shares, decisions and what happens if a partner leaves. - This is general information, not legal or tax advice — check GOV.UK and consider professional advice. Going into business with someone else is one of the most natural ways to start out — two heads, two sets of skills, shared risk and shared reward. The simplest legal form for doing so in the UK is the **business partnership**. It is cheap to set up, light on paperwork, and gives the partners a great deal of freedom. But that freedom comes with a serious catch: in an ordinary partnership, the partners are personally on the hook for the business's debts, including those run up by each other. This guide explains how partnerships work, how they are taxed, where the risks lie, and why a written agreement is so important. *This is general information, not legal or tax advice.* ## What a business partnership is **A business partnership is a structure in which two or more people run a business together and share its profits.** The partners jointly own and manage the business. There is no separate legal entity standing between them and the business — in an ordinary partnership, the partners *are* the business, in much the same way a [sole trader](/business/sole-trader-vs-limited-company) is their business, just with more than one person involved. This is the most common form, the **ordinary (general) partnership**. There are also variations: - **Limited partnership** — a less common structure with both general partners (who manage and bear full liability) and limited partners (who invest but have limited liability and no management role). - **Limited liability partnership (LLP)** — a popular modern form that gives partners limited liability while keeping the flexibility of a partnership. We cover this in detail in our guide to [LLPs](/business/what-is-an-llp). Unless people specifically set up an LLP or a limited partnership, "partnership" usually means an ordinary one — and that is the focus here. ## How a partnership is taxed A partnership has an unusual tax treatment that often surprises people: **the partnership itself pays no tax**. It is *tax-transparent*. Instead, the profits are divided between the partners according to their agreement, and each partner is taxed individually on their own share. In practice this means: 1. The partnership works out its total profit for the year. 2. That profit is **divided** between the partners as agreed. 3. **Each partner** reports their share on their own Self Assessment return and pays **Income Tax** and **National Insurance** on it. 4. The partnership also files its **own partnership tax return** (form SA800), but only to show how profits were split — it pays no tax directly. So a partner is taxed much like a self-employed individual. Each one needs to register for Self Assessment, and one partner is usually nominated to handle the partnership's own return. Our guides to [National Insurance](/business-finance/what-is-national-insurance) and the [Self Assessment tax return](/business-finance/self-assessment-tax-return-guide) explain the personal side. This contrasts sharply with a limited company, which pays [Corporation Tax](/business/what-is-corporation-tax) in its own right before the owners are taxed on what they take out. > Because each partner is taxed on their *share* of profit — not on what they actually draw out of the business — partners can face a tax bill on money they have left in the business to fund its growth. Planning for that matters. ## Liability: the big risk The defining risk of an ordinary partnership is **unlimited, joint liability**. Just as a sole trader is personally responsible for business debts, so is each partner — but with an added twist: partners are generally responsible for **each other's** business actions too. This *joint and several liability* means: - If the partnership cannot pay its debts, creditors can pursue the partners' **personal assets** — homes, savings and so on. - One partner can be held liable for debts or commitments entered into by **another** partner on the business's behalf. - If one partner cannot pay their share, the others may have to cover it. This is a profound level of trust to place in someone, and it is the single biggest reason to choose partners carefully and to consider whether an LLP, which protects personal assets, would be safer. It is also why keeping the partnership's finances tightly controlled — the discipline behind good [cash flow management](/business/cash-flow-management-small-business) — matters so much. ## Why a partnership agreement is essential A partnership can technically exist with nothing in writing — but operating without a **partnership agreement** is a serious gamble. If there is no agreement, the **Partnership Act 1890** supplies default rules, and those defaults are blunt. For example, the law presumes profits are split *equally*, regardless of how much money, time or expertise each partner contributed. A good written agreement sets out the things people assume will never be a problem until they are: - **Profit and loss shares** — who gets what, and on what basis. - **Capital contributions** — what each partner put in. - **Roles and responsibilities** — who does what, and decision-making powers. - **Drawings** — how and when partners can take money out. - **Bringing in or removing partners**. - **Dispute resolution** — how disagreements are settled. - **Exit and dissolution** — what happens if a partner wants to leave, retires, becomes ill, or dies, and how the partnership would be wound up. The hardest moments in any partnership are departures and disputes, and these are precisely what an agreement protects against. Drafting one with a solicitor early — while everyone is on good terms — is far cheaper than untangling a dispute later, and is part of starting any venture properly, alongside the practical steps in our guide to [how to start a business in the UK](/business/how-to-start-a-business-uk). ## Setting up a partnership Setting up an ordinary partnership is refreshingly simple compared with forming a company. Broadly, you: 1. Choose a **business name** (following the rules on what names can include). 2. Choose a **nominated partner** to deal with HMRC and submit the partnership return. 3. **Register the partnership** with HMRC for Self Assessment. 4. **Register each partner** individually for Self Assessment too. 5. Put a **partnership agreement** in place. Unlike a limited company, there is **no registration at Companies House** for an ordinary partnership, and no public filing of accounts — which some people value for privacy and simplicity. You may also need to consider [VAT registration](/business/uk-vat-registration) if turnover crosses the threshold, and PAYE if you take on employees. The light setup is a genuine advantage; the trade-off is the unlimited liability that comes with it. ## Partnership, sole trader or company? Choosing between structures comes down to your priorities: - A **sole trader** is simplest but is a solo venture with unlimited liability. - An **ordinary partnership** lets two or more people share a simple structure — but with shared, unlimited liability. - An **LLP** keeps partnership flexibility while limiting liability. - A **limited company** offers limited liability and potential tax efficiency, at the cost of more admin and public disclosure. A company structure also unlocks access to business-specific lending products — some lenders, such as [Credicorp](https://credicorp.co.uk), lend exclusively to UK limited companies rather than partnerships or sole traders. Many partnerships eventually incorporate or convert to an LLP as they grow and the stakes rise. There is no universally right choice — it depends on risk, profit levels and how much administration you are willing to take on. ## The bottom line A business partnership is two or more people running a business together and sharing its profits. In an ordinary partnership the partners share unlimited, joint liability for the business's debts — including each other's — and each partner pays Income Tax and National Insurance on their share of profits, while the partnership itself pays no tax. Setting one up is simple and private, with no Companies House filing, but the liability risk is real. A written partnership agreement is essential to head off disputes over profits, departures and decision-making. Weigh a partnership against an LLP or a company, and treat **GOV.UK** and **HMRC** as the authoritative sources. ## Frequently asked questions ### What is a business partnership? A business partnership is a structure where two or more people, or sometimes companies, run a business together and share the profits. In an ordinary partnership, the partners also share responsibility for the business and its debts. It is a common, low-cost way for people to go into business together. This is general information, not legal advice. ### How is a partnership taxed? The partnership itself does not pay tax. Instead, profits are divided between the partners according to their agreement, and each partner pays Income Tax and National Insurance on their own share through Self Assessment. The partnership must also file its own tax return showing how profits were split, but it pays no tax directly. ### Are partners liable for business debts? In an ordinary partnership, yes — partners have unlimited personal liability and are jointly responsible for the partnership's debts. Each partner can be liable for the actions and debts of the others. To limit this, people use a limited liability partnership (LLP), which protects partners' personal assets. ### Do I need a partnership agreement? It is not legally required, but it is strongly recommended. Without one, the law applies default rules that may not suit you, such as splitting profits equally regardless of contribution. A written agreement sets out profit shares, responsibilities, decision-making and what happens if a partner leaves or the partnership ends. ## Sources - [GOV.UK — Set up a business partnership](https://www.gov.uk/set-up-business-partnership) - [HM Revenue and Customs](https://www.gov.uk/government/organisations/hm-revenue-customs) - [GOV.UK — Business and self-employed](https://www.gov.uk/browse/business) --- Daily Junction — https://dailyjunction.co.uk/business/what-is-a-business-partnership