Choose a partnership structure

When starting a business with others, you need to choose between three partnership structures. Each has different implications for personal liability, registration requirements, and ongoing compliance.

Key question - do you need limited liability?

The fundamental choice is whether you want personal protection from business debts. In a general partnership, you're personally liable for everything - including debts created by your partners. In an LLP, your personal assets are protected.

General partnership - simplest structure

A general partnership is the default when two or more people trade together for profit. You don't need to register with Companies House, but you do need to register with HMRC for Self Assessment.

When to choose a general partnership

• Low-risk business activities
• You want minimal paperwork and compliance
• Partners are comfortable with unlimited liability
• Business has limited creditors or debt exposure
• You want privacy (no public filing of accounts)

Key risks

• Joint and several liability: Each partner can be held personally responsible for the entire debt, not just their share
• Partner actions: You're liable for business debts incurred by any partner
• No asset protection: Personal assets (home, savings) can be used to settle business debts

Limited partnership (LP) - mixed liability

A limited partnership has two types of partner with different liability and management rights. This structure is commonly used for investment funds and property ventures.

When to choose a limited partnership

• You have passive investors who want limited liability but don't need management control
• Property investment or venture capital structures
• General partners are willing to accept unlimited liability in exchange for full management control
• You want pass-through taxation without creating an LLP

The management trade-off

Limited partners cannot participate in management. If a limited partner takes part in management decisions, they lose their limited liability protection and become liable as a general partner. This is the crucial trade-off in the LP structure.

Limited liability partnership (LLP) - full protection with compliance burden

An LLP is a separate legal entity - it can own property, enter contracts, and sue or be sued in its own name. All members have limited liability and can participate in management. This is the most popular structure for professional practices (solicitors, accountants, architects).

When to choose an LLP

• Professional practices with negligence exposure
• All partners want limited liability protection
• All partners want to participate in management
• You're comfortable with public filing of accounts
• Business activities carry significant liability risk

Trade-offs

• Public accounts: Annual accounts must be filed at Companies House and are publicly accessible
• Annual compliance: Confirmation statement and accounts filing required each year
• Formation formality: Must register with Companies House before trading

Decision matrix

Tax treatment - all partnerships

All three partnership types are tax-transparent. This means the partnership itself does not pay tax. Instead:

• Each partner reports their share of profits on their personal Self Assessment tax return
• Partners pay Income Tax and Class 4 National Insurance on their profit share
• The partnership files a partnership tax return (SA800) but this is purely informational
• Losses can be offset against other income (subject to restrictions)

This is fundamentally different from a limited company, which pays Corporation Tax on profits before distributing to shareholders.

Partnership agreement - essential for all types

Regardless of which structure you choose, a written partnership agreement is essential. Without one, the Partnership Act 1890 defaults apply - and these rarely reflect what partners actually intend.