Partnership

In a partnership, two or more people own the business together. The partners share ownership, share the work and usually share the profits. A partnership can have more than two owners, and it does not have to be a large business.

In an ordinary partnership, the partners usually have unlimited liability. This means they are personally responsible for the business's debts, not just the money they put in. They are also jointly responsible, so a debt or claim caused by one partner's decisions can have to be paid by the others too. For example, if a customer is injured by work done by one partner in a two-person gardening business, both partners may have to pay compensation from their own money.

Advantages

Partners can invest more capital than a sole trader, giving the business more money for stock, equipment or marketing. The workload and responsibility are shared, which can reduce stress and keeps the business running when one partner is ill or unavailable. Partners can bring different skills and ideas, such as one being good at selling and the other at keeping accounts. Losses are shared too, and setting up is cheap and simple because there is no complicated paperwork.

Disadvantages

Profits must be shared, so each partner keeps only a part of them rather than all of them as a sole trader would. Unlimited liability puts the partners' personal money at risk. Partners may disagree about prices, spending or how much work each does, and these arguments can slow down decisions. Each partner is bound by the actions of the others, so one person's poor choice can affect everyone. Also, unless the partnership agreement says otherwise, the business may end if a partner leaves or dies.