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Sole trader, Partnership or Limited Company? You will need to do nothing formal to establish yourself as a sole trader or partnership business. If there are more than one of you, in the absence of a formal partnership agreement, your relationship will be governed by general law and the Partnership Act in particular. Your liability (and that of your partners) to third parties will be unlimited.

To protect yourself, if you trade as a partnership, you should have a contract (or joint venture agreement, as it is commonly known) that outlines and states what each of you can and cannot do. A partnership has the sole right to hire and fire and decide how the business is run. In a partnership a partner may be allowed to continue working no matter how unsuitable he or she is. If you want to get rid of them, you may need to dissolve the partnership.

The essentials of the partnership are two or more people coming together in business to share profits (and losses). Partnerships have to file tax returns and accounts with the Inland Revenue. The ultimate responsibility for paying the tax is that of the individual partner. There is no need to register a partnership. If you sell or dispose of a partnership, the partnership can be assigned, depending on what the partnership agreement states.

In a partnership, you may be locked into your investment. The only way out may be dissolution of the partnership with all the consequences for tax and commercial issues. Partnerships pay income tax. Partnerships pay tax by reference to the accounts of the business. They also have to pay National Insurance contributions, but these payments may be substantially less than the payments that have to be made by a company for its directors.

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