Setting up your own business involves a whole lot of research to help you make the right decisions. Here, we explain to you about the differences between registering as a sole trader or merging to form a partnership, as well as a bit of information about the advantages and disadvantages of each. Don’t worry, we won’t cram the page full of incomprehensible terms that are difficult to get your head round – we just tell you what you need to know in a way you can understand.
A partnership is literally two or more people carrying on business together in common with a view to profit…got that?! All that means is that there is not one person legally responsible for your business, but two or even more. A partnership is a simple way for two or more people to go into business together. Perhaps you have a business idea in common with a friend or associate and decide to go through with it together? Or maybe you meet someone who is also looking to start up a business and their skills perfectly complement your own? You may have come across the term ‘sole trader’ during your research on self employment. Well, if you are going into a partnership it is a similar set up process to that of a sole trader – with the obvious difference of there being more than one of you!!!
Partnerships are often a great structure for a new business for a whole variety of reasons. Firstly, the more partners there are, the more money there will be for your start up capital for the business. This gives you a greater chance of raking in bigger profits (which are of course shared between all partners don’t forget!). With a partnership, you also get more flexibility than a company would do – there are no interfering shareholders hovering by your shoulder! Obviously, if the partners don’t all agree then things can become a bit trickier and this is one of the biggest disadvantages of a partnership.
Not everyone can agree with everyone else on everything all of the time so it doesn’t matter if you are going into a partnership with your best friend or even your sister, you really should draft a deed of partnership during the formation period of your partnership. This will set out procedures for situations where the inevitable happens and disagreements arise.
It’s not all arguments though! Not only are the profits shared within a partnership, but the responsibilities also. As we mentioned, you might have gone into a partnership with someone who has different skills to your own so splitting business tasks according to your skills will make everyone’s life a lot easier and get things done quicker.
The final important consideration about partnerships is taxation (don’t we all love it!). Tax works in a similar way for people in a partnership as those who are sole traders – you must each complete a Self Assessment tax return each year. Unfortunately, this means that depending on how much your partnership is earning, you may end up paying more tax than you would if your business was registered as a limited company. Swings and roundabouts, hey!
Whatever your business plans, just weigh up the pros and cons for you of each of your options. And we wish you all the best of luck!