When two or more people go into business together, the question of structure comes up quickly. And the partnership benefits are genuinely appealing: no corporation tax, simpler administration than a limited company, and a structure that reflects how many people actually work — as equals building something together.

In our experience, though, partnerships are both underused and sometimes chosen for the wrong reasons. People pick them because they seem simple, without fully appreciating where the risks sit. Or they default to a limited company without exploring whether a Limited Liability Partnership might actually serve them better.

This post sets out our honest take on what partnerships do well, where they fall short, and how to think about whether one makes sense for your situation. We will focus on the two structures you are most likely to encounter: the general partnership and the LLP.

A partnership is formed when two or more people carry on a business together with a view to profit. In UK law, that can happen without any formal paperwork — which is both a feature and a warning. A general partnership comes into existence the moment you start trading together, whether or not you have a written agreement in place.

The two main types you will encounter are:

• General partnership: Simple to set up, governed by the Partnership Act 1890 if there is no written agreement. Each partner is personally liable for the debts of the business, including debts run up by their partners.
• Limited Liability Partnership (LLP): A separate legal entity, registered at Companies House, which gives partners limited liability. It has some of the characteristics of a company but is taxed like a partnership.

A third structure — the limited partnership — exists but is relatively uncommon in everyday business. According to Companies House data, limited partnerships represented just 1.1% of registered entities at the end of March 2024, and their share of the register has been declining for several years.

For most people starting a business together, the real choice is between a general partnership, an LLP, or a limited company. Getting that choice right matters.

Partnerships have real advantages, and we do not want to dismiss them. Here are the ones that actually matter in practice.

Simpler tax treatment

Partnerships are transparent for tax purposes. There is no corporation tax. Instead, each partner pays income tax on their share of the profits through Self Assessment. This means profits can be allocated between partners in a way that reflects their contributions — and in some cases, that flexibility can produce a more tax-efficient outcome than a company structure, particularly where the partners have different income levels or tax positions.

Profit sharing flexibility

Unlike a company where dividends must follow shareholding, a partnership agreement can set out any profit-sharing ratio the partners agree on. That flexibility can be useful when one partner contributes capital and another contributes time, for example.

Lower administrative burden

A general partnership does not need to be registered at Companies House, does not file accounts publicly, and has fewer statutory obligations than a limited company. For some businesses, that simplicity is genuinely valuable — less admin, lower costs, fewer deadlines to miss.

Straightforward setup

You can form a general partnership without a solicitor or accountant, though we would strongly advise having a partnership agreement drafted regardless. The setup cost is low and there is no registration fee.

The simplicity of a general partnership comes at a price: unlimited personal liability. If the business runs into debt, creditors can pursue the partners personally — including their personal savings, home, and other assets. And crucially, each partner is jointly liable for the actions of the other partners. If your business partner makes a bad decision that creates a debt, you are on the hook for it too.

This is not a minor footnote. For anyone operating in a sector with meaningful financial risk — construction, professional services, property — unlimited liability is a serious exposure. It can also affect your ability to get a mortgage or access personal credit, because lenders will factor in partnership liabilities when assessing your finances.

The LLP solves this problem. Partners in an LLP are not personally liable for the debts of the business beyond what they have agreed to contribute. That is a significant protection, and in most cases where clients are considering a general partnership, we find ourselves suggesting they look at an LLP or a limited company instead — precisely because of this liability gap.

We would also flag that some accountants are cautious about recommending LLPs because the structure is more complex to administer. That caution is understandable, but it should not be the reason you end up in a structure that leaves you personally exposed.

The comparison that comes up most often in our conversations with new business owners is partnership versus limited company. Private limited companies dominate the UK register — they have accounted for more than 95% of corporate entities since 2005, and there were nearly 890,000 incorporations in the year to March 2024 alone. Most people default to a limited company without much deliberation.

That default is often right. A limited company gives you liability protection, can be tax-efficient through a salary and dividend combination, and is a well-understood structure for investors, lenders, and clients alike.

But a partnership — particularly an LLP — can be the better choice in a few specific situations:

• Professional services firms (law, accountancy, architecture) where the LLP structure is the sector norm.
• Joint ventures where two established businesses want to collaborate on a project without merging their companies.
• Property investment with a spouse or family member, where the income-splitting flexibility of a partnership can be valuable depending on individual tax positions.
• Situations where the business is genuinely simple, profits are modest, and the administrative burden of a company is not worth the overhead.

Outside of these scenarios, we tend to recommend the limited company route for most owner-managed businesses — but the decision should always be made with your specific circumstances in mind, not by following what everyone else is doing.