Partnership

Also called General partnership, LLP, Limited liability partnership

Two or more people in business together. In a general partnership each is liable for all of it.

What it means

A general partnership is two or more people carrying on business in common with a view to profit. There is no separate legal entity, partners share profits, and each partner is jointly liable for the partnership's debts — including those incurred by the other partners.

A limited liability partnership is different: it is a body corporate registered at Companies House, with liability limited like a company, and it files accounts publicly.

Why it matters

Joint liability in a general partnership is severe and under-appreciated. A commitment made by your partner binds you personally, whether or not you knew about it.

Partnerships also form accidentally. Two people trading together with no paperwork may be a partnership in law regardless of what they call themselves.

What it looks like in practice

Have a written partnership agreement. Without one, the Partnership Act 1890 supplies the terms, and its defaults are rarely what anyone would have chosen — including that the partnership dissolves when a partner leaves or dies.

The agreement should cover profit shares, decision-making, what happens when someone wants out, and what happens on death or incapacity.

What to watch out for

"We'll sort the paperwork later." Partnership disputes without an agreement are among the most destructive and expensive commercial disputes there are, because there is nothing to point at.

An LLP is not a halfway house on tax — members are taxed as self-employed on their share of profits, not through PAYE.

Where to get proper advice

A solicitor for the agreement. An accountant for the structure comparison against a limited company.