What is a Partnership?

A partnership is a business owned and run by two or more people who share profits, losses, and responsibilities.

Last reviewed: 12 June 2026 | Reading time: 5 minutes | Verified against 5 sources

How Partnerships Work

A partnership exists whenever two or more people run a business together with a view to making profit. You don't need to register with Companies House or file formal paperwork (unless you form an LLP).¹

Each partner:

• Shares in the business's profits (and losses)
• Has equal say in business decisions (unless your partnership agreement says otherwise)
• Can bind the partnership to contracts
• Pays Income Tax on their share of profit

Most partnerships operate under a written partnership agreement that sets out profit shares, decision-making rules, and exit procedures.² Without a written agreement, the Partnership Act 1890 applies default rules (equal profit share, equal votes).

General Partnership vs LLP

General Partnership

In a traditional partnership, each partner has unlimited liability. If the business owes money it can't pay, creditors can pursue partners' personal assets (house, savings, car).¹

Key features:

• No registration required (but you must register for Self Assessment)
• No public filing of accounts
• Unlimited personal liability for all partners
• Simple to set up and run

Limited Liability Partnership (LLP)

An LLP is a hybrid structure that combines partnership tax treatment with limited company liability protection. Your personal liability is limited to the capital you contribute (similar to a limited company).³

Key features:

• Must register at Companies House (costs £10-40)
• Must file annual accounts (publicly visible)
• Limited liability for members
• More credibility with clients and suppliers

LLPs are common among professional services firms (accountants, solicitors, consultants) where multiple senior practitioners share ownership.⁴

General partnership setup

Free (no Companies House registration needed)

LLP registration cost

£10 online or £40 by post

Tax treatment

Partners pay Income Tax + National Insurance (20%-45%)

General partnership liability

Unlimited (personal assets at risk)

Tax Treatment

Partnerships are tax-transparent. The partnership itself doesn't pay tax. Instead, each partner includes their share of the profit on their personal Self Assessment tax return.⁵

What Partners Pay

Each partner pays:

Income Tax on their profit share at standard rates:

• 0% on first £12,570 (personal allowance)
• 20% on £12,571 to £50,270
• 40% on £50,271 to £125,140
• 45% over £125,140

National Insurance:

• Class 2: £3.45/week (if profit over £12,570)
• Class 4: 9% on profits £12,570-£50,270, then 2% above

The partnership files a partnership tax return (SA800) showing total profit and each partner's share. Partners then report their share on their individual Self Assessment returns.⁵

Example Tax Calculation

Partnership makes £100,000 profit. Two equal partners (£50,000 each):

• Income Tax: (£50,000 - £12,570) × 20% = £7,486
• Class 2 NI: £3.45 × 52 weeks = £179
• Class 4 NI: £37,430 × 9% = £3,369
• Total per partner: £11,034

A limited company at the same profit level would pay £9,500 Corporation Tax (19% on £50k), then dividend tax when extracting money. See our partnership vs limited company comparison for detailed calculations.

Setup Process

General Partnership

1. Choose a business name (optional, can just trade as "Smith & Jones")
2. Draft partnership agreement (highly recommended)
3. Nominate a nominated partner to handle tax affairs
4. Register for Self Assessment (nominated partner registers the partnership)
5. Set up business bank account

Limited Liability Partnership

1. Choose a company name (must end in "LLP")
2. Appoint at least two designated members
3. Provide a registered office address
4. Register at Companies House (£10 online, processed within 24 hours)
5. Register for Self Assessment
6. Create LLP agreement

Advantages of Partnerships

• Simple setup (general partnerships require no formal registration)
• Shared responsibility and workload between partners
• Combined expertise and capital
• Flexible profit sharing (can reflect different contributions)
• Privacy (general partnerships don't file public accounts)
• Tax losses can offset other income

Disadvantages and Risks

• Unlimited liability in general partnerships (personal assets at risk)
• Joint and several liability (one partner's mistake can affect all)
• Higher tax than limited companies for profits over £30k
• Harder to raise investment (no shares to sell)
• Partnership dissolves if one partner leaves (unless agreement says otherwise)

When to Choose a Partnership

A partnership makes sense when:

• You're starting out with a co-founder and want minimal admin
• Your profit is under £30,000 per partner (tax difference vs Ltd is small)
• You're in a profession where partnerships are standard (law, accountancy)
• You want to share losses against other income
• You value privacy (don't want to file public accounts)

For higher profits or higher-risk businesses, consider a limited company for tax efficiency and liability protection.

Last reviewed: 12 June 2026