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Partnership Business Structure: Types and Benefits

Out of the four business structures in Australia, Partnerships have become extremely common and popular as well. These are formal agreements stating the shared responsibilities to operate a business between two or more parties.
Partnership Business Structure

While the responsibilities of managing the business are shared, so is the profit. A partnership agreement is the evidence of the partnership, and it allows the partners to structure their relationship to fulfil their business needs.

Types Of Partnership Business Structure

Before moving on to the advantages of partnership, it is necessary to understand the types. There are mainly three types of partnership business structures, namely;

  1. General partnership
  2. Limited partnership
  3. Limited liability partnership


Types Of Partnership Business Structure

If you are looking for the easiest type of partnership business structure to have, a general partnership is for you. In this type, financial and legal liabilities are shared equally. Along with this, one partner gets unlimited personal liabilities for the debts or actions of the other partner.

You can start this partnership as soon as your partner and you decide to operate the business, even without a written contract. However, with the ease of starting, there comes the possibility of disputes arising. Similarly, dissolving this partnership is also pretty easy.

In limited partnerships or LPs, the legal liability for debts and obligations is limited, only for some partners. This partnership must have a general partner who gets complete personal liability for the debts under the name of the partnership.

Also, there must be one silent partner who never participates in the regular operation or management of the partnership. His liability is solely limited to the invested amount. Compared to general partnerships, LPs are more complex and also expensive.

If the legal liabilities of all members are limited, then this partnership is termed a limited liability partnership or LLP. Under this partnership, the general partners are protected from other partners’ wrongdoings, like misbehaviour, negligence or any unprofessional conduct.

For this partnership business structure, a written contract is mandatory. LLPs are preferred for large professional service businesses. To either start or dissolve this partnership, you must report and register with the local authorities.

Partnership Agreement

Partnership Agreement

A partnership agreement states the terms of any partnership. The rights and responsibilities of the partners are also present in it. Since more than two partners are involved, it is natural for disputes to occur. A partnership agreement can significantly help with the written information, saving you money, effort and, most importantly, time.

Advantages Of a Partnership Business Structure

Here are listed some advantages of a partnership business structure:

  • The more partners come together to run a business, the better. The burdens will lessen, and different ideas for the growth of the business will be available.
  • The start-up costs are low, making the business easy to establish.
  • Availability of more capital
  • Higher borrowing capacity
  • The business affairs of the partners are kept private.
  • Changing the legal structure is relatively easy.
  • Partnerships are relatively simpler to run as compared to companies and trusts.

Usually, the number of partners is limited to 20 in a partnership, but there are a few exceptions when the numbers may differ.

A well-planned partnership can help a business grow, while a poorly thought one will only lead to conflicts and disagreements.


Disclaimer: The information on this website is for general purposes only and should not be relied upon for making legal or other decisions. The advice provided in this article is general in nature and is not subject to the personal financial situation and needs of any individual. Clear Tax tries to keep the information accurate and up-to-date; however, you should bear in mind with changing circumstances, the accuracy and reliability of the information will not necessarily remain the same. The information is by no means a substitute for financial advice.