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.
- 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)
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