Reading time: 3 minutes

Are you launching a new business? Understanding the different business structures available will better position you to choose one that manages your risks, protects your assets, limits your liability and enables your business to grow. This week, we consider the advantages and disadvantages of running your business through a partnership.

What is a Partnership?

As discussed in an earlier article in this series (Business Structure Series: Partnership Advantages), we defined a Partnership as an association of people or entities running a business together, but not as a company. Partners jointly own the business’ assets and jointly share the profits and losses. Each partner is also entirely responsible for all debts and liabilities incurred by the other partners.

What are the Disadvantages?

Disadvantages to running a business as a partnership include:

  • Disputes: When running your business as a partnership, the potential for disputes is ever present especially regarding profit sharing, administrative control and business strategy. However, having a clear and detailed partnership agreement in place should help limit any potential disputes.
  • Liability: The partners will be jointly and severally liable for all debts incurred by the partners. This means that if the business fails and one partner cannot afford to pay his or her share of any debts incurred, the other partners will be responsible for the shortfall. Furthermore, a partner is also jointly responsible for any debts its partners incur in relation to the business regardless of whether it had knowledge of such.
  • Asset protection: As a partner, your liability for the business’ debts is unlimited. As such, your personal assets are at risk to settle the business’ debts.
  • Agency: Each partner is an agent of the partnership and is liable for the actions of other partners.
  • Change of ownership: A change in ownership can be difficult. You will have to value the partnership’s assets, and this can be costly. You will most likely need to establish a new partnership between the partners.
  • Additional laws and obligations: Some additional laws and regulations govern how partnerships can operate, and these can increase compliance obligations.

Conclusion

As discussed earlier in our series, there are clear advantages to running your business as a partnership. It is an attractive business structure if you want a simple and relatively cheap way of sharing control, resources, responsibilities and profits with a small trusted group of people. There are, however, disadvantages to running your business through this structure, particularly concerning liability and asset protection.

Questions? Please get in touch with LegalVision’s experienced business structuring experts. We would be delighted to assist you in setting up the best business structure to suit your needs.

Webinars

Preventing Modern Slavery: Your Business’ Legal Obligations

Thursday 9 September | 11:00 - 11:45am

Online
Are you an Australian business with $100m+ annual consolidated revenue? Learn how to determine if you are a modern slavery reporting entity and your obligations under the legislation with this free webinar.
Register Now

How to Expand Your Online Business Globally

Wednesday 15 September | 11:00 - 11:45am

Online
Understand your legal risk when expanding your online business overseas with our free webinar.
Register Now

Negative Online Reviews: What are the Legal Options?

Wednesday 22 September | 11:00 - 11:45am

Online
Negative or false online reviews of your business can be disheartening and damaging. Understand your legal rights and options with this free webinar.
Register Now

Australia’s Global Talent Visa: How to Attract Top Talent

Thursday 7 October | 11:00 - 11:45am

Online
Understand how to navigate Australia’s complex migration system to attract top overseas talent with our free webinar.
Register Now

5 Essential Contracts for your Online Business

Thursday 14 October | 11:00 - 11:45am

Online
Learn which key contracts will best protect your online business with our free webinar.
Register Now

About LegalVision: LegalVision is a tech-driven, full-service commercial law firm that uses technology to deliver a faster, better quality and more cost-effective client experience.

The majority of our clients are LVConnect members. By becoming a member, you can stay ahead of legal issues while staying on top of costs. From just $119 per week, get all your contracts sorted, trade marks registered and questions answered by experienced business lawyers.

Learn more about LVConnect

Need Legal Help? Get a Free Fixed-Fee Quote

If you would like to receive a free fixed-fee quote or get in touch with our team, fill out the form below.

Our Awards

  • 2020 Excellence in Technology & Innovation Finalist – Australasian Law Awards
  • 2020 Employer of Choice Winner – Australasian Lawyer
  • 2021 Fastest Growing Law Firm - Financial Times APAC 500
  • 2020 AFR Fast 100 List - Australian Financial Review
  • 2021 Law Firm of the Year - Australasian Law Awards
  • 2019 Most Innovative Firm - Australasian Lawyer