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An introduction to partnerships. What types of partnership are there? What are the differences? 

At a glance

Partnerships are transparent for tax purposes. This means that each individual is taxed as an individual, as opposed to the partnership being taxed as a body distinct from its owners.

Certain groups are unable to form partnerships and these include:

When a company is a partner in a partnership it is taxed on its profits according to Corporation Tax rules.

Overview & FAQs

There are three different types of partnership defined in partnership law:

The conventional partnership

This type of partnership is defined by the 1890 Partnership Act as "Partnership is the relation which subsists between persons carrying on a business in common with a view of profit"

Many of the conventional partnership's key features are similar to those for a sole trader.

There are some significant differences.

The limited partnership

This type of partnership is governed by the 1907 Limited Partnership Act. It is not to be confused with a limited liability partnership (LLP).

Key features

The Limited Liability Partnership (LLP)

This trading vehicle is a cross between a conventional partnership and a company. It has the best features of each. LLPs are governed by the 2000 Limited Liability Partnership Act and the 2006 Companies Act.

For a limited liability partnership to be incorporated, two or more persons associated for carrying on a lawful business with a view to profit must have subscribed their names to an incorporation document.

"Business” includes every trade, profession and occupation.

The LLP Act does not mention interests in land.

Key features

Limited or unlimited partnership?

The LLP is the favourite type of partnership for most individuals who are conducting a trade or business because it affords the partners the protection of limited liability.

A 1907 Act limited partnership is useful for estate planning. An LLP has to file its accounts with Companies House, but a limited partnership does not. This version of partnership has long been the favourite vehicle for private equity and investment funds. It has the flexibility to allow for various partnership interests. A limited partnership can also be useful when one partner wishes to have limited liability as he moves to taking a back seat in the business.

If you are looking for a flexible trading vehicle in general terms, then consider a conventional unlimited partnership or an LLP. If you are looking at fund or asset management then perhaps consider a limited partnership.

Do we need a partnership agreement?

Partnerships are relationships and any relationship may go wrong. It is sensible to have a partnership agreement in place to determine (the following list is an absolute minimum):

See Partnerships agreements: A cautionary tale

Tax planning and partnerships

Family partnerships are a useful tool in estate planning, however, partnerships can also be very tax-efficient in terms of Income Tax and capital taxes,

Useful guides on this topic

Will I pay less tax if I trade in partnership??
Will I pay less tax if I trade via a partnership or a LLP compared to if I trade via a company or as a sole trader?


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