A partnership involves two or more partners (people or entities) carrying on a business together with a view to profit. Partnerships are governed by the Partnership Act of the state or territory in which the partnership was formed, and are limited to a maximum of 20 partners.
Partnerships have the following advantages:
- It's relatively easy and inexpensive to set up.
- Each partner has shared control and management of the business.
- Partners are jointly contributing their labor, capital and skills to build the business. This increases the businesses chance of survival/success. (as compared to sole traders).
- Ability for income splitting.
- Easy to dissolve.
- Limited external regulation and partners business affairs are private.
The disadvantages with partnerships are:
- Each partner is jointly liable for all partnership debts (unlimited liability).
- Each partner is an agent of the partnership and is liable for actions by other partners.
- There is the risk of disagreements and conflict between partners.