Chris Thorpe looks at partnerships and companies and considers which business model might be best.
A sole trader looking to expand their business might be weighing up the ‘pros’ and ‘cons’ of a partnership or a limited company. They are very different, with not only very different tax consequences, but functions as well.
Partnership
A partnership is essentially two or more sole traders coming together for a common venture. It is governed by the Partnership Act 1890, with the tax rules mostly contained within a Statement of Practice (SP D12, dated January 1975).
Partnerships are transparent; they do not have their own legal identity, so the individual partners are subject to income tax on their own profit shares (irrespective of drawings, and with Class 4 National Insurance Contributions) and shares of capital profits or losses for.
