It is common for potential contractors to be reluctant about ‘going it alone’ and entering self-employment as a sole trader. Perhaps your line of work lends itself better to being completed by two people, or maybe you just need someone to bounce ideas off.
Whatever the reason may be, entering into a partnership is a possibility you may wish to consider. Of course, you should only establish this formal working relationship with someone you trust and know you can work closely with, as problems can arise if the relationship turns sour.
Considering the options
It is entirely possible for two people working together to set up a limited company. However, this brings about a need to complete a wealth of associated paperwork and other administrative tasks and this can be problematic if the pair do not work closely together on these tasks or the burden or responsibility for doing so is not equally shared.
As a result, many people choose to register as partnership with HM Revenue and Customs (HMRC). This is similar to operating as a sole trader, but each partner pays their own tax and national insurance through a self-assessment tax return. In addition, one nominated partner must complete a Partnership Tax Return, though there are organisations that offer a tax return service to help with this process.
Unlike in a limited company, each partner will be held personally responsible for business debts, even if these were brought about by the other person in the partnership. Therefore it is important that you only enter into a partnership with someone that you trust.
What’s in a name?
If you’ve decided to go down the route of establishing a partnership, you will need to decide between yourselves what name you will trade under. This may seem like a trivial point, but the name of your business can have a significant impact on its operations. For example, simply naming it after the surnames of the two partners is a common practice, but this could lead to many clients ruling the partnership out of consideration for contracts because it is not made clear what services are offered.
It is also important to ensure the name will not cause offense and does not contain any trademarks or copyrights that belong to other companies. It is also necessary to ensure you do not choose a name that is taken by another business, either in your area or nationally, to avoid confusion. Unfortunately, there is no database of UK company names, but it is a good idea to do an internet search to see if it is already being used.
At the very start of the relationship, both partners will need to inform HMRC that they are now self-employed. However, if one of the partners withdraws from the business – for example, if they die or go bankrupt – the partnership must be dissolved.
Because of the potential for disagreements to occur as the business develops because partners may wish to pursue opposing paths, deeds should be drawn up at the beginning of the partnership. These should detail how much each person invests into the business, how it will operate and make provisions for what will happen if there are changes in the relationship.