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 are liable for the other’s actions. But, before starting a partnership, did you know that there is a maximum number of partners a partnership can have?
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Reasons For Forming A Partnership?
Some of the advantages to creating a partnership are:
- It is cheaper and easier to set up
- Shared control and management of 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 to the business, such as over profit sharing and managerial issues
Forming A Partnership
There are no formalities to creating a partnership. 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 to distribute the profits between each other. However, it is always best to have your partnership agreement in writing so as to protect your interests against future disagreements.
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Maximum Number of Partners
According to section 115 of the Corporations Act 2001 (Cth), the maximum number of partners that a partnership can have is up to 20 partners (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 are planning to have more than 20 partners and do not fall within the exceptions, then a partnership is probably not suitable for your business.
If you are still unsure of the right business structure for you or need your documents reviewed, then get in touch with a business lawyer today.
