A partner in a partnership is treated the same way, in legal terms, as a sole trader. A partner differs from a sole trader in that the business is undertaken not as an individual, but with two or more individuals who have rights and obligations which are set out in a partnership agreement. If no formal agreement is in place then the Partnership Act 1890 is assumed. Partners are deemed to be jointly and severally liable for all business activity. In other words, the actions of one partner affect all partners, and all partners are responsible for the benefits and obligations that accrue from such actions.

The benefits of partnership are similar to sole traders in that the reporting requirements are again more simplified, with annual returns having to be made to HM Revenue & Customs (although there are more returns to complete than for a sole trader).

The general reason people form a partnership is to share in profits of a business activity and a partnership can be reasonably flexible in the way that profits are distributed amongst the partners, thus incurring tax benefits that sole traders do not possess.

For further details on the legal form of partnership please contact ESquare.