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Starting a Business with a Partner

By: Rachel Newcombe - Updated: 17 Sep 2010 | comments*Discuss
 
Business Business Finance Leadership

Starting a business with a partner can work out as a great option for many people. But what do you need to know if you’re going into partnership with one or more people?

A partnership involves starting a business with one or more other people. It can work out very well, especially if you’re starting a business for the first time, as it means you’re not on your own and have got additional back-up and support to share ideas and work out solutions. It’s also useful if one partner has more experience in certain areas, such as leadership skills, or if you need extra funding and can’t sustain it on your own.

Each partner involved has a share of the business. This doesn’t have to be an equal share – it may vary depending on how much financial investment or time they are inputting into the craft business – and they each take a corresponding share of the profits. As well as working with people you already know and have rapport with, it’s also possible to have sleeping partners, who invest money and give financial support to help the business, but play no further part in the day-to-day running of the business.

Deciding to form a partnership shouldn’t be a decision you take lightly. You need to ensure you will get along with your partners on a long-term basis and all share the same vision for the business. If one has vastly different views on how things should be run and you foresee potential problems arising, then go with your gut feelings and give it serious thought before you commit to it, otherwise you may regret it at a later stage.

It’s also important to keep in mind the potential downsides of starting a business with one or more partners. If a partner decides to resign, dies or becomes bankrupt, then the whole partnership has to be dissolved (although the business can carry on as normal).

It can be useful to put together a list of all your strengths and weaknesses, focusing on what you could each bring to the business if you form a partnership. This can help highlight any issues and give you time to work them through and reach compromises in advance of the partnership commencing.

Creating a Partnership

When you’re just starting out and creating your business partnership, there are some essential formalities that need to be drawn up and sorted out first, before you get on with the practical issues of developing and running your business.

In order to form a partnership, each partner needs to register as being self-employed. This makes them in charge of their own National Insurance and tax. The partnership as a whole, plus each individual, then has to complete an annual self-assessment tax return each year.

A partnership agreement needs to be drawn up by a solicitor, so you’re both clear of the key details. It should include information such as:

  • The names of the partners.
  • The name of the business and its focus.
  • The date the partnership commences and how long it will last.
  • Details of the capital and the interest on it.
  • Details of how the profits will be split.
  • Details about the management and control of the business.
  • Details about what will happen if one of the partners leaves, retires or dies.

If you are forming a Limited Liability Partnership (LLP), then you also need to submit a form called an Incorporation Document (LLP2) to Companies House. This form includes similar details to the partnership agreement, plus the location and address of the registered office, the name, full address and date of birth of each partner, and details of which partners are the ‘designated’ member.

The designated member, or members, will have certain duties to perform, such as submitting the accounts, employing an auditor, signing the accounts, delivering the accounts and annual return to Companies House, and updating Companies House with any changes to the members or their addresses.

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