If you’re starting a business and have one or more partners, it might seem obvious to form a business partnership.
This is a business structure that allows you and at least one other person to both have ownership of the business.
Even though forming a partnership might make sense, it’s not your only option. Before you form a partnership, you must know the pros and cons of this business structure. What are the advantages and disadvantages of a partnership?
There are three types of partnerships: general partnerships, limited partnerships, and limited liability partnerships. While each type has specific pros and cons, there are partnership pros and cons that cover them all.
Before you start choosing a specific partnership type, take a look at general pros and cons of a business partnership.
Pros of a partnership
Here are the advantages of having a business partner.
You have an extra set of hands
Business owners typically wear multiple hats and juggle many tasks. Owners are surrounded by constant busyness, late nights, and smoldering problems.
When you have a business partner, you have a person—or multiple people—who can help you with all the business tasks.
The partners can divide up tasks, meaning tasks will get done faster and the partners might be able to tackle more than if they worked alone
A partnership business is one of the most common forms to run a business in the UK, with several hundred partnerships currently in existence. The most common alternatives are the sole trader and limited company.
Looked at positively, the business partnership model enables you to go into business with someone else without the perceived formality of a limited company.
From a less positive perspective, with a partnership business you’re losing control of the direction of your business without putting adequate protection in place.
Let’s look in turn at the advantages and disadvantages of a business partnership
One of the main advantages of a partnership business is the lack of formality compared with managing a limited company.
The accounting process is generally simpler for partnerships than for limited companies. The partnership business does not need to complete a Corporation Tax Return, but you’ll still need to keep records of income and expenses.
A partnership tax return must be submitted to HMRC and each partner will need to file their own self assessment tax return including details of their profits from the partnership (as well as any other income).
Unlike a limited company, you don’t need to complete a confirmation statement and the plethora of other possible Companies House forms that a limited company may need to submit will never be required for the partnership.
There are also fewer records to maintain: in particular, a business partnership does not need to maintain a set of statutory books like a limited company has to.
Unless a formal partnership agreement has been drawn up, a partnership business can easily be dissolved at any time: this gives each partner the freedom to choose to leave if they wish to
Less formal with fewer legal
Easy to get started
Sharing the burden
Access to knowledge, skills, experience and contacts