Partnership vs Limited Company: Which is Right for You?

Partnerships and limited companies differ fundamentally in liability, tax treatment, and administrative requirements.

Last reviewed: 12 June 2026 | Reading time: 5 minutes | Verified against 5 sources

Key Differences: Quick Comparison

Liability: Unlimited vs Limited

Partnership Liability

In a general partnership, each partner has unlimited personal liability. If the business owes money it can't pay, creditors can pursue your house, savings, and other personal assets.¹

This is joint and several, meaning one partner's mistake or debt can affect all partners. If your partner signs a contract or takes out a loan, you're equally liable even if you weren't involved in the decision.

An LLP (Limited Liability Partnership) provides limited liability, but you still file public accounts and have more admin than a general partnership.²

Limited Company Liability

Your personal liability is capped at the value of your shares (typically £1-100). If the company fails owing £50,000, creditors cannot claim against your personal assets.³

Exception: directors can be held personally liable if they trade while insolvent or act fraudulently.

Tax Efficiency Comparison

Partnership Tax

Each partner pays Income Tax and National Insurance on their share of profit:⁴

• Income Tax: 20% (basic), 40% (higher), 45% (additional)
• Class 2 NI: £3.45/week
• Class 4 NI: 9% up to £50,270, then 2%

Limited Company Tax

The company pays Corporation Tax on profit, then you pay personal tax when extracting money:⁵

• Corporation Tax: 19% (up to £50k), 25% (over £250k)
• Salary: Income Tax + NI (same rates as above)
• Dividends: 8.75% (basic), 33.75% (higher), 39.35% (additional)

Tax Comparison at Different Profit Levels

£30,000 profit (sole owner/partner):

• Partnership: £5,052 (Income Tax + NI)
• Limited company: £4,800 (Corporation Tax + minimal dividend tax)
• Saving: £252 (not significant given extra admin)

£50,000 profit:

• Partnership: £11,034
• Limited company: £9,500 (Corporation Tax only, before extraction)
• Potential saving: £1,500-2,000 depending on extraction strategy

£100,000 profit:

• Partnership: £34,234
• Limited company: £23,750 (Corporation Tax) + dividend tax when extracted
• Typical total limited company tax: £28,000-30,000
• Saving: £4,000-6,000/year

The limited company advantage grows as profit increases. Below £30k, the tax difference rarely justifies the extra admin and accountancy costs.

Admin and Compliance

Partnership Requirements

• Partnership tax return (SA800) filed annually
• Each partner files Self Assessment
• Keep business records for 5 years
• No requirement to file public accounts (general partnerships)
• LLPs must file accounts at Companies House

Limited Company Requirements

• Annual accounts filed at Companies House (public)
• Confirmation statement (£13/year)
• Corporation Tax return
• Self Assessment for salary and dividends
• Maintain statutory registers
• Minute board meetings (even if you're sole director)

Partnership privacy

General partnerships don't file public accounts

Limited company transparency

Accounts publicly visible at Companies House

Accountant essential?

Strongly recommended for both, mandatory for most limited companies

Total annual compliance cost

Partnership: £600-1,500 | Limited company: £800-2,500

Flexibility and Control

Partnerships

• Flexible profit sharing (doesn't need to match ownership percentages)
• Easy to admit new partners or change profit splits
• Partnership dissolves when a partner leaves (unless agreement prevents this)
• All partners have equal authority unless agreement says otherwise

Limited Companies

• Shareholders own, directors manage (can be same people)
• Easy to sell shares or bring in investors
• Company continues regardless of ownership changes
• Formal director appointment and removal processes

When to Choose Partnership

• Starting out with low profit (under £30k)
• Want minimal admin and setup costs
• Value privacy (don't want public accounts)
• Work in a profession where partnerships are standard
• Need flexibility in profit sharing
• Business carries low liability risk

When to Choose Limited Company

• Profit over £30,000 (tax efficiency kicks in)
• Business involves significant liability risk
• Want to protect personal assets
• Plan to raise investment or sell the business
• Prefer professional credibility of "Ltd"
• Happy to manage extra compliance requirements

Can You Switch Later?

Yes. Many businesses start as partnerships and incorporate (become a limited company) when profits grow. The process involves:

1. Form a limited company
2. Transfer business assets to the company
3. Partners become directors and shareholders
4. Dissolve the partnership

This is called incorporation. Seek accountancy and legal advice to handle tax efficiently.

For more detail, see our guides on partnerships and limited companies.

Last reviewed: 12 June 2026