If you have decided to begin a new business and you have someone who is going to start that business with you, then you may want to consider forming your business as a partnership. If you were to start the business on your own then a sole trader option may be better. However, if you have another person or more who wants to go into business with you and you are not yet ready to set up a limited company, a partnership is a better option and for many reasons.
A partnership is simply two or more people who own and operate a business together. Partnerships are not required to have separate legal statuses. If you want to create a unique legal entity then a limited company may be best. You can also form a limited company through one of your partners in the partnership.
When you form your partnership, one partner is required to be the nominated partner. This person is responsible for registering your new partnership with HMRC. HMRC registration can be done online or through a company formation agent. The partner who is designed will be registered with HMRC for self assessment tax.
One thing that you do not need to do when forming a partnership is notify Companies House. It is not required for you to register your company through Companies House and you have no accounting or administrative requirements with a partnership. This is one reason that many choose this option over forming a limited company when they are first starting out their business.
You should note however that each partner is liable for your business. This means that every single partner has a personal liability for any debts that your business incurs. If your business fails or is dissolved, all partners will be responsible for splitting the costs to pay off any business debts.
With regards to taxes, each partner will be responsible for reporting to HMRC that they are now self employed. Each business income will be counted on a personal level next to any personal income for each partner. Because of this, it may be a good idea to hire a professional accountant for tax purposes, particularly if you or none of your partners have experience in preparing tax documents. A professional accountant can also help you to meet all of the requirements for your partnership, including helping you to file the necessary paperwork with HRMC for each partner.
There are legal issues that you will also need to consider. If during your business operation, any partner withdraws then you will be required to dissolve the partnership immediately because it has no legal status. You have to take into consideration that things happen that are often unforeseen. Make sure that you are prepared to dissolve your business if and when one of these issues arises. There are a number of benefits to forming a partnership just as there are benefits to any legal business entity. You should research the advantages and disadvantages of the different company formation types before making your choice to ensure that you are selecting the right entity for your new business.