A partnership is a legal structure where two or more people share ownership of a business. It is a business where multiple people act on behalf of each other and share income. There are three different types of partnerships, each with their own terms and implications.
What are the three types of partnerships?
1. A general partnership is when all aspects are equally shared with the partners; investment, workload, liability and profits. 2. A limited partnership is when outside investors can buy into a business but only have limited liability based on their agreed contributions. 3. A joint venture is generally small or short-term projects where multiple parties are involved. This can sometimes progress into a general partnership based on the success of the project.
Advantages:
- Relatively easy and simple to set up - You can operate under a trading business name - Requires a separate Tax File Number (TFN) - You have shared control of your business with your partners - Unlike companies, partnerships do not need to display their profits to the public
Disadvantages:
- More partners in a business can mean more opinions - It is not a separate business entity - meaning the business partners are personally liable for the debts of the business, this is known as 'jointly and severally' liable - Tax is charged at a personal rate, as business earnings increase so will your tax rate. Remember, research is important when you are choosing the best avenue to take your business. It's important to understand the in-depth differences in business structures before making your decision. We advise you to seek legal or other professional advice before deciding on the best structure for you.
