How to set up a business as a partnership

Thinking about starting a business with someone? A partnership can be a great way to combine ideas and share the workload. But just like any good relationship, it takes clear communication, solid planning and some upfront work to make sure things run smoothly.

This guide explains the key steps to setting up a business partnership, from picking the right partner to registering the business.

Key steps

• Find a business partner

• Define the business

• Choose a business name

• Create a partnership agreement

• Register the partnership

• Understand your tax obligations

• Open a partnership bank account

• Get accounting software

• Buy appropriate business insurance

What is a business partnership?

A business partnership is a type of business structure where two or more people agree to run and manage a business together and share its profits, losses and responsibilities.

There are three main types of business partnership. A general partnership is the easiest to set up because there is no legal distinction between the business and its owners. All partners are personally liable for any losses the business makes.

By comparison, a limited liability partnership (LLP) is a separate legal entity from its partners, who all have limited liability for business debts.

The third option is a limited partnership that has at least one general partner (with unlimited liability) and at least one limited partner (with limited liability).

How to set up a partnership

We’ve outlined the essential steps to setting up a business partnership below:

1. Find a business partner

First, you need to find a suitable business partner – you can have more than one partner, but that can lead to challenges when managing your business.

The key is to choose partners you can trust – people who are reliable, share your vision for the business, and have the right skills.

2. Define the business

Next, decide what kind of business you want to operate together. As part of this, you should consider the different partnership types to see what works best. General partnerships are easier to establish, but you must accept that you are personally liable for any business debts. If you’d prefer a more formal setup with limited liability, an LLP might be the way to go.

You also need to think about what products or services your business will provide. It can be sensible to set up a business in an industry you’re already familiar with, whether that’s due to previous experience or industry connections.

3. Choose a business name

Once you’ve decided on the business type, you can pick a name. Just make sure it follows the rules – your business name can’t be offensive, and it mustn’t be the same as or too similar to an existing company name or trademark.

As a general partnership or limited partnership, you can trade under your own names or select another name for your business. You don’t need to register this name, but names must not include ‘limited’, ‘Ltd’, ‘limited liability partnership’, ‘LLP’, ‘public limited company’ or ‘plc’.

On the other hand, if you’re setting up an LLP, your business name must end in ‘limited liability partnership’ or ‘LLP’. You can use the Welsh equivalents if you’re registering your LLP in Wales.

4. Create a partnership agreement

A partnership agreement is a legally binding document that outlines the rights, responsibilities and duties of each partner, and it’s an essential part of setting up a partnership. It should include:

• Roles and responsibilities: Define who does what based on each partner’s strengths, experience and interests

• Profit sharing: Decide how you will divide profits. This should reflect each partner’s contributions, whether it’s time, money or resources

• Loss sharing: Agree on how to handle any business losses

• Decision making: Set out how you will make key decisions, including how voting works and who has the final say

• Exit strategy: Plan ahead for what happens if a partner retires, dies or wants to leave

5. Register the partnership

If you’re setting up a general partnership, the nominated partner must register the partnership for self-assessment with HMRC – you can usually do this online at the GOV.UK website.

Alternatively, you can fill in a SA400 form and send it by post. As a nominated partner, you are also responsible for sending the partnership tax return and maintaining business records.

LLPs must provide a registered address for their business and register with Companies House. You can register your LLP yourself or use a formation agent, accountant or solicitor to do this for you. If you’re doing it yourself, you can use third-party software to help. It costs £50 to register, or £78 if you use the same-day service.

Alternatively, you can download and fill in an application form. It costs £71 to register this way. An LLP must have at least two designated members to keep company accounts.

Limited partnerships must also register with Companies House and provide a registered address. Again, you can download and fill in the application form and send it by post. This also costs £71.

6. Understand your tax obligations

When you register a partnership, the partnership itself isn’t taxed. Instead, all partners must register individually for self-assessment and file their own tax return each year to pay income tax on their share of the business profits.

You must also complete a partnership tax return each year to declare the income or losses of the partnership and tell HMRC how this has been split.

If you think your sales will exceed more than £90,000 in a year, you must also register the business for VAT.

7. Open a partnership bank account

If your business is an LLP or limited partnership, you must open a business bank account. There’s no requirement for general partnerships to open a partnership bank account, but it can still be beneficial.

Holding a business account can help you keep personal and business transactions separate, making it easier to budget and complete your tax returns. It can also make your partnership look more professional and give you access to features such as invoicing tools.

8. Get accounting software

Accounting software makes it easier to handle bookkeeping, manage cash flow and file tax returns on time. There are plenty of options, so it’s worth comparing features and pricing to find the right fit. Some business bank accounts also let you sync your account to specific software, or they might include it for free.

Depending on your needs, you might also consider hiring an accountant for extra support and peace of mind.

9. Buy appropriate business insurance

Finally, make sure you consider business insurance. Some policy types are mandatory, while others are optional.

If you employ staff, for instance, it’s a legal requirement to have employers’ liability insurance. Depending on your business type, it’s also worth thinking about public liability insurance and professional indemnity insurance.