A business partnership is two or more people running one business together, sharing the profits and sharing the responsibility for what the business owes. In an ordinary partnership there is no company in the middle: each partner is personally liable for the business's debts, including debts another partner ran up. You register the partnership with HMRC, one partner files a return for the business, and every partner also files their own. The document that decides how it all works is a written partnership agreement.
At a glance
| Feature | Detail |
|---|---|
| What it is | Two or more people trading as one business, sharing profits and liability |
| Two versions | Ordinary partnership (HMRC, no liability protection) or LLP (Companies House, liability limited) |
| Your liability | In an ordinary partnership, joint and several — you can be pursued for the whole debt |
| How to set up | Register the partnership with HMRC; each partner also registers for Self Assessment |
| Who files what | A nominated partner files the partnership return; each partner files their own return |
| Tax | The partnership pays no tax itself — each partner is taxed on their share of the profit |
| The document that matters | A written partnership agreement, drawn up by a solicitor |
A partnership is one of the structures a UK business can take, alongside sole trader, limited company, LLP and community interest company. Our business structures guide compares them; this page goes deep on partnerships.
What a partnership actually is
If a sole trader is one person who is legally the same as their business, an ordinary partnership is that arrangement with more than one person in it. There is no separate company. The partners own the business between them, share the profit between them, and carry the debts between them.
It starts more easily than people expect — arguably too easily. Two people who agree to run a business together and start trading have formed a partnership, whether or not either of them used the word or signed anything. That is the root of most partnership problems: the business exists from day one, but the rules for running it often never get written down.
Partnerships suit people who genuinely go in together: two tradespeople who work as a pair, siblings running a shop, a designer and a developer taking on projects jointly. What they need on top of the handshake is an agreement, which is the last section of this page and the one worth reading twice.
Ordinary partnership or LLP
There are two shapes, and the difference is liability.
An ordinary partnership is the simple one. You register with HMRC, there is no filing at Companies House, nothing is published, and there is no protection between the business's debts and each partner's personal money.
An LLP — limited liability partnership — is a partnership wrapped in the protection a limited company gets. It is registered at Companies House, its accounts are on the public register, and each partner's losses are normally limited to what they put in. It carries real annual filing obligations in exchange, and it is the structure professional firms usually pick: accountants, architects, solicitors, surveyors. If your work is advisory and a mistake could be expensive, an LLP is the version to ask an accountant about.
There is also a third route people forget: two people can simply form a limited company and take a share each. For many pairs starting out, that gives the liability protection they wanted from an LLP with a structure their accountant and their bank already understand. If you go that way, issue 100 shares rather than one — it costs nothing extra and means a 60/40 split, or bringing in a third person later, is a simple matter of numbers. Our limited company guide covers what running one involves.
Joint and several liability: the bit most people miss
This is the single most important fact about an ordinary partnership, and most people going into one have never heard the phrase.
Joint and several liability means each partner is responsible for the whole of the business's debts, not just their share of them. If the partnership owes £20,000 and one partner cannot pay, the person owed the money can pursue the other partner for all £20,000. They do not have to split the claim, and they do not have to chase the partner who caused it first — they go where the money is.
It also means you are exposed to decisions you did not make. If your partner signs a supply contract, takes on a lease, or orders £15,000 of stock in the partnership's name, that debt is yours as much as theirs.
This is not a reason to avoid partnerships. Thousands work perfectly well for decades. It is a reason to be deliberate about three things: who you go into business with, what each of you is allowed to commit the business to without the other agreeing, and whether an LLP or a limited company would suit the risk you are actually carrying. The first and third are judgement calls. The second is written into a partnership agreement, and that is what the agreement is for.
Registering a partnership with HMRC
Registration is straightforward, but there are more moving parts than a sole trader has.
Pick a nominated partner. One partner is named as responsible for the partnership's tax return and its dealings with HMRC. It is an admin role, not a senior one — the other partners are just as liable for the business either way.
Register the partnership. The nominated partner registers the partnership itself with HMRC, and it gets its own Unique Taxpayer Reference. GOV.UK's page on setting up a business partnership is the official route.
Every partner registers individually too. Each partner registers for Self Assessment in their own right, because each one is taxed personally on their share of the profit.
Then two kinds of return get filed each year. The nominated partner files a partnership return showing the business's sales — sales is the everyday word, the one HMRC uses is turnover — its costs, its profit and how that profit is divided. Each partner then puts their own share on their own Self Assessment return and pays Income Tax and National Insurance on it. The partnership itself pays no tax; the partners do.
There are deadlines for registering and for filing, and penalties for missing them that can land on every partner rather than just the nominated one.
One practical note: Plan's setup step covers sole trader and limited company, so a partnership is registered directly with HMRC or through your accountant.
Why you need a written partnership agreement
Here is what happens without one. The Partnership Act 1890 fills in the gaps, and its defaults are blunt — profits split equally regardless of what each partner put in or does, and the partnership can be brought to an end by one partner walking away. Those defaults were not written for your business, and they surface at the worst possible moment: when somebody leaves, gets ill, dies, wants more money, or stops pulling their weight.
A partnership agreement is a contract between the partners that replaces those defaults with what you actually agreed. A solicitor draws it up — this is one of the few places where paying for the paperwork properly is obviously worth it, because the cost is small next to the cost of arguing about it later. What follows is a plain description of what such an agreement usually settles, so you can turn up to that conversation knowing what to ask for. It is not legal advice.
Money in. What each partner is putting into the business — cash, a van, equipment, a client list — and whether that stays their property or becomes the partnership's. Whether money put in is a loan to be repaid or a permanent stake.
Money out. How profits are divided, and whether that split matches the money in, the hours worked, or something else entirely. How much each partner can draw month to month, and what happens if the business has a bad year and someone has drawn more than the profit supports.
Who decides what. Which decisions either partner can take alone, and which need everyone to agree. Setting a value above which no one can commit the business without the others is the clause that protects you from joint and several liability in daily life.
Work and time. What each partner is expected to do and how many days a week. Holiday. What happens if someone wants to go part time, or takes on other work.
Someone leaving. How a partner gives notice, how their share is valued, and how they get paid out — over what period, from what money. Whether the business continues or ends when someone goes.
Illness and death. Who can act if a partner is unable to work, for how long they keep drawing money, and what happens to their share if they die — including whether it passes to their family or is bought back by the remaining partners. This is the clause nobody wants to discuss and the one that causes the worst outcomes when it is missing.
New partners. Whether one can be brought in, who has to agree, and how their stake is created.
Disputes. How a disagreement gets resolved before it reaches court — usually a stated process, then mediation. And how the partnership is wound up if it comes to that.
Write it before you start trading if you possibly can. It is much easier to agree all of this while everyone is still getting on.
What this looks like in practice
Take City Florists, a flower subscription business set up by two people, Ellie and Marco. Customers pay £40 a month for a weekly bouquet or £22 for fortnightly, and each delivery costs about £6 to fulfil. With 250 subscribers on the weekly plan that is £10,000 a month of sales.
The partnership part is not in those numbers, it is around them. Ellie put in £8,000 of her savings for the cold store and the van; Marco put in no cash but works six days a week, while Ellie is in three days because she has kept another job. With no written agreement, the default is an equal split of the profit — so Ellie's £8,000 counts for nothing and Marco's extra three days count for nothing. Both of them think that is unfair, for opposite reasons.
An agreement drawn up before they started would have settled it in an afternoon: Ellie's £8,000 treated as a loan repaid out of profits before any split, and a 60/40 profit share while Marco works the extra days. Both of them would have known where they stood from the first month.
Create a mini business plan in minutes with Plan.business. Put in your prices, hours and costs, and it works out your profit month by month — which is the number a profit share is a share of, and worth agreeing before you start.
Figures correct as of September 2026. Tax thresholds, fees and rates change; check the linked GOV.UK pages before acting. Prices and costs shown are indicative and vary by area and by what's included.
What is Plan?
Plan is a free business operating system for people starting or newly running a UK business. It walks you, one simple step at a time, from your elevator pitch through brand, product and pricing, to a complete business plan — then uses everything it now knows about the business to help with the basics: logo and brand, marketing, a website, a bank account, funding, insurance, company registration. You can use as much or as little as you want.
Frequently asked questions
Do I need a partnership agreement? Not legally, but going without one means the Partnership Act 1890 decides for you — typically an equal profit split whatever each partner put in, and a business that can be ended by one partner leaving. An agreement drawn up by a solicitor sets out money in, money out, decisions, leaving and disputes.
What is joint and several liability in a partnership? It means each partner is personally responsible for the whole of the business's debts, not just their share. If the partnership cannot pay, whoever is owed the money can pursue any partner for the full amount, including debts another partner ran up.
How do I register a business partnership with HMRC? Choose a nominated partner, register the partnership itself with HMRC so it gets its own Unique Taxpayer Reference, and have every partner register for Self Assessment individually. Each year the nominated partner files a partnership return, and each partner files their own.
What is the difference between a partnership and an LLP? Liability and where it is registered. An ordinary partnership is registered with HMRC and gives no protection for personal money. An LLP is registered at Companies House, publishes accounts, and normally limits each partner's losses to what they put in.
Do partnerships pay tax? The partnership itself does not pay tax. It reports the profit and how it is divided, then each partner pays Income Tax and National Insurance on their own share through their Self Assessment return, at the same rates as any other self-employed person.
Two ways to do this
Work out the numbers yourself, free. Plan builds the business plan and the year's profit month by month from your own answers — the figure a profit share is calculated from. It runs in your browser, nothing to download, and you can do just this bit and stop there.
Or get the agreement drawn up. The partnership agreement is the one part of this worth paying a solicitor for. Take your numbers and the list above to them, and it becomes a short, cheap piece of work rather than an open-ended one.