What is a Partnership?

Partnership

A partnership is an association of people who carry on a business as partners or receive income jointly.

In many ways, a Partnership is similar Sole Trader– but the difference is that TWO or more people TOGETHER are the business. This is both the main strength, AND the main weakness. With a Partnership the business is NOT a separate legal entity either. By law, the size of a Partnership is not unlimited. Generally speaking, a Partnership is limited to between 2 and 20 partners. However, there are some interesting exceptions.

 

Advantages:

  • It’s relatively easy to set up
  • It’s inexpensive
  • There is less paperwork (in comparison to business structures like Trusts and Companies)
  • There is less government interference and regulation (at least in comparison to a Company)
  • It offers more privacy (in comparison to the reporting requirements of a Company)
  • There is less need for hiring lawyers, accountants, and other consultants (at least in comparison to a Trust or Company)
  • There is a broader management base (compared to that of a Sole Trader), which also means a wider pool of expertise, shared risk (which can be both good and bad…) and more sources of capital
  • There may be tax planning advantages (such as income splitting)

 

Disadvantages:

Partnership is that all partners are “jointly and severally liable” for all debts and liabilities incurred by the business.

  • Lack of continuity- Bankruptcy or death ends a partnership. Partnership must then be re-formed (which incurs costs, paperwork, and lots of time …)
  • Transfer of ownership is difficult-Such as Business name/ownership
  • Friction between partners, personality clashes, etc
  • Limitations on size (generally speaking the maximum number of partners in a Partnership is 20, but with some exceptions …)
  • If a partner absconds or dies, other partners are left with that partner’s debts and liabilities
  • Adding partners is difficult – generally requires the agreement of all partners
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