Are you an Australian business looking to partner with another business? Choosing the right business partner is crucial to the success of any business.
A business partner should complement your skills, bring new ideas and perspectives, and share your vision for the future.
The right partner can help you navigate the challenges of running a business, and together you can achieve greater success than either of you could alone.
The right business partnership can lead to long-term success and growth for your business in Australia. But forming a partnership is a legal process.
In this article, we take you through the most pressing question when forming a business partnership, i.e., What are the maximum number of partners in a partnership?
Read along
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What is a legal partnership?
A partnership is one of the more common types of business structures that you can choose for your business.
Generally, a partnership involves two or more people who have agreed to carry out a business as co-owners and to share the income received. Each partner also acts on behalf of the other partners and is liable for the other’s actions.
What are the types of business partnerships?
There are three different types of business partnerships:
- A general partnership (GP) is a business structure in which all partners actively participate in managing the company. In this arrangement, each partner assumes full responsibility for the business’s management and is personally liable for any debts or obligations it incurs. Explore the benefits and limitations of a general partnership.
- On the other hand, a limited partnership (LP) comprises general partners who have their liability restricted to the amount of their financial contribution to the partnership. Unlike general partners, limited partners typically serve as passive investors and do not engage in day-to-day business operations. Learn more about the advantages and characteristics of a limited partnership.
Meanwhile, an incorporated limited partnership (ILP) provides a balance between limited liability and active involvement in the business. Within an ILP, partners can enjoy limited liability for the company’s debts, but having at least one general partner who assumes unlimited liability is essential. Should the business fail to meet its obligations, the general partner (or partners) becomes personally liable for any remaining debt.
Reasons for forming a partnership?
Establishing a partnership is easy. This means that you do not have to have anything evidenced in writing for the partnership to form. A partnership may arise where two or more people have agreed to control and manage the business together and distribute the profits. However, it is always best to have your partnership agreement in writing so as to protect your interests against future disagreements.
Some of the advantages of creating a partnership are:
- It is cheaper and easier to set up
- Shared control and management of the business with people who are equally committed to the success of the business
- Minimal reporting requirements
- Increase borrowing capacity as more capital is available
There are also disadvantages of a partnership, which should be considered:
- Partners have unlimited liability for the debts or liabilities incurred on behalf of the business by other partners
- Potential disputes may arise that will cause problems for the business, such as over-profit sharing and managerial issues.
What is the maximum number of partners in a partnership firm
According to section 115 of the Corporations Act 2001 (Cth), the maximum number of partners a partnership can have is up to 20 (with some exceptions).
Conclusion
Starting a business is exciting, but it is important for you to first do your research before deciding on the right business structure. If you plan to have more than 20 partners and do not fall within the exceptions, then a partnership is probably unsuitable for your business.
If you are still unsure of the right business structure for you or need your documents reviewed, contact a business lawyer today.
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