Advantages and disadvantages of a partnership structure

The advantages of a partnership structure include:

• • ease of establishment;
• • minimal reporting obligations and often fewer compliance burdens;
• • relative privacy;
• • taxation advantages including the ability to distribute losses and the application of certain capital gains tax concessions;
• • responsibility and control is shared; and
• • the availability of finance can be greater with multiple parties pooling their collective resources.

The disadvantages of a partnership structure include:

• • with the exception of some professional partnerships, there is a limit of 20 partners;
• • partners are jointly liable for debts and other contractual obligations and jointly and severally liable for wrongful acts;
• • a partnership is not a distinct entity and so does not enjoy perpetual succession;
• • the ability to transfer ownership of a partnership interest may be restricted and absent a partnership agreement which deals with continuity, the retirement and admission of new partners can cause practical difficulties;
• • inflexibility for estate planning, succession planning and asset protection; and
• • partners are taxed on their share of profits at their marginal rate, which may not be tax effective in some instances.

See Advantages and disadvantages of a partnership structure.