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HMRC internal manual

Partnership Manual

Introduction to Partnerships and Partnership Taxation: who can be a partner?

There are few restrictions on who can be a partner. Both natural and artificial persons, such as companies, can be partners. It is not a requirement of partnership that each member is physically capable of performing the full range of the activities of the partnership business, but each must be capable of performing a part of the activities, even if that role is only to provide finance. Please refer to BIM82020 for further guidance. A partner who plays no active part in the business but has contributed capital is often described as a ‘sleeping partner’.

There may be occasions when a person is described as a partner but is, in actual fact, an employee of the business. For example, the title may be given for prestige. ‘Salaried partner’ is the term usually used to describe such an employee. It is important to be aware, however, that the term may also be used to describe a person who is an actual partner, rather than an employee. For example, the term may be used to describe a partner who receives a first share of the firm’s profits. Whether or not a person is a partner or an employee will depend on the facts. More detailed guidance is available at BIM82025.

Spouses and civil partners can enter into partnership with each other. Sometimes this is done for tax planning reasons as it may be advantageous for a person to share their business profits with his or her spouse to maximise the use of their personal allowances and basic rate tax bands. HMRC is unlikely to challenge such an arrangement. See BIM82065 for further guidance.

Minor children - Although partnerships involving minor children are rare, in law, a person under the age of eighteen may be a partner provided that they have the intellectual capacity to understand the nature of the business and the obligations of partnership. The age at which they reach this point will vary according to the individual and the business. Whether they become a partner is a question of fact. A minor, though, is not liable for any debts of the firm.

Under Scottish law, a person under the age of 16 is highly unlikely to be considered to have legal capacity to enter into a partnership, however (Age of Legal Capacity (Scotland) Act 1991, sections 1 and 2).