The Partnership Act 1890 defines a partnership as ‘the relationship which subsists between persons carrying on a business in common with a view of profit’. Partnerships may employ other people, but cannot normally have more than 20 partners. (Professional partnerships such as accountants and solicitors are exceptions to this rule.)
As a general rule, profit is shared equally between the partners. Income tax assessment is then based upon the personal circumstances of each individual.
Pick your partners carefully, if you choose this business type. As is the case with sole traders, partnerships have ‘unlimited liability’, and partners are regarded as being liable both ‘jointly and severally’. That is, all partners may be held responsible for one partner’s actions, and personal assets may be seized to pay off business debts.
Limited Liability Partnership
The difference between a Limited Liability Partnership (LLP) and an
ordinary partnership is that with an LLP, liability is limited to the
amount of money that the individuals have invested in the business, and
to any personal guarantees they have given to raise finance. This
ensures that the partnership members receive some protection if the
business runs into trouble.
Like an ordinary partnership, an LLP is made up of individuals or
limited companies who share in the risks, costs, responsibilities and
profits of the business.