A partnership is a simple way for two or more people to go into business together. Setting up a partnership is much simpler than registering a limited company. However, it is important to understand that a regular partnership (as opposed to a limited liability partnership) affords the partners no protection from liability.

It is not necessary to register a partnership with Companies House – unlike a limited liability partnership, which must be registered (see our article on registering a limited liability partnership). Each of the partners will, however, have to register as self employed with HMRC. There are certain other requirements that you should understand before setting up a partnership.

The types of partner

A partnership can be made up of two or more parties. There are three main types of partner:

• General partners invest in the business. They often take on responsibility for the day-to-day management of the partnership, and normally share in any profits that are made. Crucially, general partners are personally liable for any debts run up by the partnership. There must be at least one general partner in every partnership.
• Sleeping partners invest in the business but do not take on responsibility for its day-to-day management. They are also personally liable for debts run up by the partnership.
• Companies may be partners in a partnership. Companies that do so will have extra responsibilities during their annual accounting.

The deed of partnership

As has been explained, there is no necessity for partnerships to be registered at Companies House. However, it is generally recommended that partners draw up and sign a deed of partnership. This document outlines the way in which the partnership will be run, and the rights and responsibilities of each partner.

A deed of partnership will generally give details of:

• each partner’s initial capital investment;
• the way in which any profits will be divided between partners, and the way in which partners will draw a salary;
• the way in which management tasks will be divided up amongst partners;
• and procedures for replacing or adding new partners.

Partnerships without a deed of partnership will be governed according to the Partnership Act of 1890. This is unsuitable for many (if not most) organisations and, as such, it is normally recommended that partners should contact a solicitor to discuss their requirements and draw up a deed of partnership prior to starting their business.

Naming a partnership

A partnership can be named after its partners; for example, Jones and Smith Widgets. Alternatively, it can assume a trading name; for example, Very Good Widgets. If you wish to use a trading name that does not include the names of the partners, you must ensure that the partners’ names appear on all stationery. They should also appear on your website.

Similarly, when opening a business bank account you should check that your chosen bank will allow you to use a trading name; some will only offer this service to limited companies.