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Partnership

A partnership is an agreement between two or more people to carry on a business together for profit.

Partnerships are appropriate where a small number of people are involved and the risks are minor. The upper limit on the number of people involved is usually 20.

The rights and obligations of partners are defined by the Partnership Act 1891. Unless there is an agreement stating otherwise, all partners are equally entitled to share the capital and profits and must also equally bear responsibility for losses and debts incurred.

On this page:

Advantages and disadvantages
Partnership agreements
Choosing a partner
Seek advice

Advantages and disadvantages

Advantages:	Disadvantages:
two heads are better than one easy to establish low start-up costs access to more capital from partners greater borrowing capacity high-performing employees can be made partners tax savings through income splitting privacy of partners' business affairs limited regulation - Partnership Act 1891 easy to change legal structure.	unlimited liability of the partners for the debts of the business each partner is liable for all of the partnership's debts - jointly and severally risk of disagreements and friction - may be difficult to operate if problems arise each partner is liable for actions of other partners transer of ownership is complicated taking on a new partner requires the consent of all parties.

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Partnership agreements

Partnership agreements provide a set of rules for conducting the business. An agreement should set out:

names and addresses of the partners
nature of the business
duration of the partnership
business name and business address
capital required for the business
capital contributions of each partner
distribution of net profits
provision for partnership drawings (income)
authority for decision-making or signing financial and legal documents
how the business is to be conducted and controlled
procedures to be followed in the event of the bankruptcy, death or retirement of a partner, admission of a new partner, or dissolution of the partnership.

Agreements should be drawn up before the business is started and they should be in writing. Partners may terminate the agreement at any time by giving due notice of their intentions.

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Choosing a partner

You should choose your business partners very carefully. Think carefully about what each person can contribute in capital and expertise. Family and friends do not necessarily make the best partners.

Undischarged bankrupts and persons of unsound mind cannot enter into a partnership.

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