Choose a partnership structure

When two or more people go into business together, the structure you pick decides who answers for the business's debts, who can run it and what goes on the public record. The question that settles most of it is whether you want the business's debts to stay with the business or to fall on you personally.

How the three structures compare

All three are taxed in the same way. The partnership does not pay tax on its profits; each partner or member is taxed on their share through their own Self Assessment return.

General partnership

You form a general partnership simply by carrying on a business together with a view to profit. There is nothing to register to create it and nothing to file publicly.

The price is exposure. Every partner is an agent of the firm and of the other partners, so what one partner agrees in the usual course of the business binds you all. Each partner is personally liable for all the debts and obligations the firm takes on while they are a partner, whoever in the firm took them on.

It suits a small, low-risk business whose owners trust each other and are content to carry that liability.

Limited partnership

A limited partnership has two kinds of partner, and the split decides who carries the risk and who runs the business.

The bargain is that limited partners stay out of management and cannot bind the firm. A person cannot be a general and a limited partner at the same time. Until a limited partnership is registered, all its partners are equally responsible for its debts.

It suits a business in which some partners only invest and others only manage.

Limited liability partnership

An LLP can own property, make contracts and sue or be sued in its own name. The LLP itself is liable where a member's wrongful act was done in the course of its business or with its authority.

Designated members are responsible for keeping accounting records, preparing and sending the annual accounts and sending the confirmation statement. Those accounts are on the public record. Designated members can be prosecuted if they do not meet their legal obligations.

An LLP suits a professional practice or any business where all the owners want protection and a say in how it is run.

How to decide

• If you are not willing to risk your personal assets for the business, rule out a general partnership.
• If some of the owners will only invest and will not take part in running the business, a limited partnership fits.
• If every owner wants both protection and a say, an LLP is the partnership structure that gives you both.
• If you do not want your accounts on the public record, an LLP will not suit you.

Whichever you choose, put the terms in writing. Without a partnership agreement, default rules apply, including that all partners share equally in capital and profits and that every partner may take part in management. An LLP's default rules also share profits equally.