- A traditional business partnership. Each partner is self-employed and entitled to an agreed share of the partnership’s profits. Each partner is also potentially liable for the business debts of the partnership.
- A private limited company. Each of you can be a shareholder and/or a director of the company. This is a flexible option, as you can decide whether to have equal shareholdings or not, how decisions will be taken, and so on. It also provides some protection against liability for business debts (unless you personally guarantee them).
- A limited liability partnership (LLP). Like a limited company, this needs to be registered at Companies House and offers some protection against personal liability. But partners are generally taxed on their share of the partnership’s profits as self-employed rather than employees.
Whatever form you choose, you should have a formal, written partnership agreement (or shareholders’ agreement for a private limited company). Among other things, this should cover:
How much capital each partner will contribute, and what share of the profits they will be entitled to.
What each partner’s duties and responsibilities will be, and how decisions will be taken.
How new partners can be brought into the business partnership.
What will happen if a partner becomes ill, dies or wants to leave the business.
It makes sense to think through all the practical issues in advance, to minimise the risk of disputes and make it as easy as possible to resolve them.