A partnership is when two or more people combine to form a business unit. There was previously a restriction stating that a maximum of 20 partners was allowed but this has now been lifted. Each partner receives a percentage of the return of the business, depending upon how much they invested.

As with sole traders, partners are also responsible for all the debts incurred by the business. This does not only apply to debts incurred by that partner but any partner. Take care because creditors will take your personal assets to pay off debts incurred by other partners if necessary.

When considering what format the business should take, partnerships need extra attention. One of the most fundamental issues is to get a partnership agreement, according to Thelma Quince, who recently completed a study into 390 businesses in East Anglia.

Results of the study

Many choose to start together:
· Of 390 firms in a study in East Anglia over 60% had been founded or acquired collaboratively
· Of 500 high growth firms in the UK 68% had been founded or acquired collaboratively
· Of the majority of these firms (between 75% and 80%) had been started or bought by people who were not related or married.

Steps to setting up as a Partnership

1. Setting up a partnership agreement

Such an agreement will force partners to think about issues such as the structure and roles of each person involved as well as the likely exit routes for the partners. This can ensure that there is a mechanism for valuing and buying one partner's shares.

2. Put it on paper:

If you are going to trade under a name different to your own personal name you must display the name/s of the owners and an address where documents can be served on all business stationery and at your premises. Design letterheads, business cards and signage accordingly. We recommend Vistaprint as a cheap source of good quality, self designed stationery. See Marketing section for more practical tips on marketing.

3. Use the right name:

A business name means the name of your business if it is different to your own name.
It is not compulsory to register a business name but you can do so with the National Business Register.

You also need to be careful about choosing a name since the wrong name can get you into difficulties.

Certain words and expressions like international, federation and registered are restricted under the Business Names Act 1985 and the Company and Business Names Regulations 1995. Companies House and the National Business Register have lists of these words and details of how to obtain approval to use them.

Your business name can not be the same or too similar to that of another business, trademark or company. If it does conflict you could face legal action from its owner. Check phone books, trade journals and magazines to ensure against clashes and you can run free name checks against all these via the National Business Register as well as the Trade Marks Register and the Patent Office.

To be absolutely sure that you can use a name, contact a solicitor, to perform the checks or register your name with the National Business Register who will do the checks for you and ensure nobody copies it the future or passes it off as their own.

4. Inform the authorities:

You must register as a partnership with the HMRC within three months of starting up or face a £100 fine. The three month limit starts from the last day of your first month of trading. Gary and Bob must decide on which of them is to e the main point of contact with the HMRC. The main partner must complete a CWF1 form and send it to the local tax office

East Lancashire Self-Assessment Team

9-11 Minden Parade

Bury

Lancashire

BL9 0QN

0845 302 1441

or call the Newly Self Employed Hotline on 0845 915 4515

A CWF 1 form can be obtained from the HMRC website of by following the link

CWF 1 form

You must register as a partnership with the HMRC within three months of starting up or face a £100 fine. The three month limit starts from the last day of your first month of trading.

5. Write a business plan

You must put your ideas down in a jotting pad and use this as a basis of your business plan. Please see our business planning section in more detail.

A word of warning

One of the common factors with collaborations, such as Gary and Bob’s is the mutual respect. If you lose confidence in the competence of your partner and start to worry about whether they can do the job, that can be fatal to a business.

Why collaborate?

These are the advantages of collaboration given by almost all of the 106 co-owners in the recent East Anglian study:

• Being able to share the burden. Partnerships give mutual support, companionship, and someone to share the problems
• It can be stressful, lonely and frightening running a business alone. With someone else, you can feel like you are in it together
• Having access to more skills, knowledge and experience. Partnerships provide for a wider skill base, complementary experience and know ho. For example, him technical – me financial
• Very few individuals have all the skills and knowledge needed to run a business successfully. Another person brings another set of skills, knowledge and experience.
• Better, more effective decision-making. A partner will bring different perspectives on problems. If often helps being able to see different points of view
• Being able to look at problems from many angles can help to achieve better often more creative solutions: more people means more chances of getting it right.

Why shouldn't you collaborate?

These were the most important disadvantages of collaboration seen by the co-owners:

• Less autonomy
• That is, not being able to do your own thing and not always getting your own way
• Sharing ownership does mean that you can't always do what you want
• Differences in personal aims and objectives for the firm
• Different views on personal rewards versus investment in the business
• People have different views about their own future which may not be compatible
• People differ in how they see the future of the firm; some are ambitious for their firm and want to build an empire, some want a quieter life
• Decision making can be slower
• Having to win consensus often slows decision making.
• Collaboration often means that the cost of a wider perspective on problems is a loss of spontaneity

Other disadvantages mentioned included:

• The distraction and cost of handling conflict between co-owners
• Resentment when reward is not seen as fairly matched by effort

What makes for successful collaboration?

Aspects of the interpersonal relationship between owners were cited most frequently as making for good co-owning relationships. Aspects of the working relationship were also mentioned but appeared less important and few co-owners mentioned factors such as social class, educational background or age.

In their interpersonal relationships co-owners need to:

• Have the same shared visions, aspirations and objectives for their firm
• Have similar or compatible personal values
• Have mutual respect for the other's competence
• Have mutual trust in the other and for the other's honesty
• Be tolerant of the other's weaknesses
• In their working relationship co-owners need to:
• Have complementary skills and knowledge
• Be good at working as a team
• Have clearly defined responsibilities and roles.

Our level of understanding is limited but it does appear that collaboratively owned or acquired firms are likely to be more successful and grow faster, and in certain important sectors, such as high tech, collaborative ventures may predominate.

Legal issues

A sole trader or partnership business is simple to set up legally although certain trades may need a licence. These include night-clubs, taxi and car hire, restaurants, pet shops, indoor sports venues, adult shops, street trading, hotels, pet kennels, nursing homes, waste management, weapons sales and money lending. You can get a licence from Bolton Metropolitan Borough Council for most of these.

To make sure you are on the right side of the law refer to the relevant Acts of Parliament:

Trade Descriptions Act 1972: makes it a criminal offence to knowingly make false or misleading claims - verbal or written - about goods or services you offer. This means such factors as ingredients, place of manufacture and customer testimonials as well as associating yourself with a brand without being entitled to.

Sale of Goods Act 1979: dictates that goods you sell must be of satisfactory quality, match your promises of performance and be as you describe them.

Supply of Goods and Services Act 1982: commits you to undertake services you offer with reasonable care, skill, time and cost.

Data Protection Act 1984: directs you to register the source, nature and purpose of any personal data you keep about individuals except data used for internal administration like payroll. Registration forms are available at post offices.

Consumer Protection Act 1987: holds you liable if you supply a faulty product causing damage or injury unless you can show that not enough was known about its dangers at the time of supply. And to protect yourself under this Act offer an estimate first and a written quote only when you have properly assessed costs.

Price Marking Order 1991: makes it compulsory to put the price of goods offered for sale in writing.

You should consider any legislation relating to environmental and health and safety requirements. Also check the planning and building regulations relating to your premises. Bolton Metropolitan Borough Council (01204 336586) and the Department of Trade and Industry should be the first ports of call for this.