Law guide: Business start-up

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The basics

The basics

The basics

In England, Wales and Northern Ireland, a partnership has no separate legal identity, so it can't own assets or enter into contracts in its own right. The partners own the assets and are personally liable for contracts entered into by the partnership and any debts of the partnership. A partnership can sue or be sued in its own name. However, the partners are personally liable if the court gives a judgment against the partnership.

A partnership is an association between 2 or more people formed to carry on a common business with a view to making a profit.

Note that a partnership is different from a limited liability partnership.

It's normal for the partners in the UK to put in a place a written partnership agreement, which includes details such as:

  • How the business will be run
  • How profits (and losses) are shared
  • How much capital each partner contributes
  • Arrangements for introducing new partners
  • How much each partner can draw from the business
  • What happens if a partner becomes ill, dies, or wants to leave the partnership

The advantages and disadvantages of a partnership compared to a company are much like those of a sole trader, but with these extra considerations:


  • The structure of the partnership can be tailored to what the partners want and this can be done through the partnership agreement.
  • Responsibility for managing the business is shared.
  • The financial risks of the business are also shared.
  • By having a number of partners you're able to have people with different skills involved in running the business.
  • You can raise extra money for your business by bringing in new partners who have to make a capital investment before becoming a partner.
  • The business can be set up with few formalities in much the same way as a sole trader. (However, it's better to have a written partnership agreement.)


  • All the partners are liable for the debts of the partnership, but each partner is also personally liable for all the debts of the partnership (except tax on profits), even if they were caused by another partner. This is known as 'joint and several liability'. This means that if you're a partner, your personal assets will be at risk if you can't repay the debts of the partnership.
  • If one partner acts negligently, you'll all be held responsible.
  • If you disagree with each other, it can cause problems in running the business.
  • Business decisions, including entering into credit agreements, can be made by one partner but affect you all.

Related services

  • Partnership agreement
    Compatible region(s): England & Wales

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