Partnerships are a common extension of the sole trader model, for example when two or more individuals work together to build the business. The partnership is just as flexible as the sole trader and has the merit of input from multiple individuals.
A Partnership Agreement is required as to how the liabilities, ownership and profits of the business are split and what happens if one partner exits. In a standard partnership, as with sole traders, all partners are also responsible for those debts owed by the business. This doesn’t only apply to debts you have incurred as a partner but to those of any other partner – particular care should therefore be taken of reviewing the conduct of your co-partners.
This remains a relatively simple and inexpensive way to form a business. There are also some tax advantages to including your share profits on a personal Tax Return. In terms of disadvantages, under an old style partnership, the partners can be personally at risk to creditors very much in the way of a sole trader.