03: Types of partner

The commercial and tax implications of partnership may vary depending on the type of partner concerned.

Equity (full) partner

All partnerships must have at least one equity partner. Full partners have a capital stake in the business and share in the profits and losses. Except in LLPs, they have unlimited liability for the debts of the partnership.

Salaried partner

A salaried partner may appear as a full partner to outsiders but is generally an employee whom the partners are considering taking into partnership some time in the future. A salaried partner normally does not share in the profits and losses of the business and pays their tax under PAYE, as do other employees. A salaried partner normally has unlimited liability for the firm’s debts, so must suffer the risks without benefiting from the full rewards.

Limited partner

A limited partner’s liability is limited to the capital they have invested in the firm. Unless the partnership is an LLP, the limited partner may not take an active part in the management of the firm.

Sleeping partner

A sleeping partner is a partner who takes no active part in the management of the business but shares in the profits and losses of the firm and has unlimited liability for debts. A sleeping partner’s income from the partnership is unearned income and is not liable for NIC, nor does it count as earnings for other purposes (e.g. pension).

Corporate partner

A corporate partner is a partner that is a limited company. This can be useful where the normal risks of partnership are unacceptable. Such a partner pays corporation tax on its profit share.