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When it comes to launching your business in 2025, one of the most important questions you should ask yourself is, “What business structure suits my goals and risks best?”
Your choice of business structure should align with your objectives, resources, and financial considerations. One popular option is a partnership, but there are several key factors to consider before you take the plunge. It’s worth comparing this model against other setups – for instance, read our insights on the differences between a partnership and a company to help guide your decision.
What Is A Partnership?
A partnership is a popular business structure owing to its straightforward, low-cost setup process. It involves two or more people collaborating to run an enterprise, sharing not just the profits but also the responsibilities and risks.
There are multiple types of partnerships:
- Limited liability partnerships
- General partnerships
- Limited partnerships
What Is A Limited Liability Partnership?
Limited liability partnerships (LLPs) provide a structure where partners can work together while protecting their personal assets. In an LLP, if one partner’s actions result in debts or legal issues, the other partners aren’t automatically held personally liable. This feature is especially valuable in today’s dynamic business landscape.
What Is The Difference?
It’s important to distinguish between the types of partners within a business structure. Limited liability partners enjoy protection against being held responsible for another partner’s errors, whereas limited partners typically contribute financially but do not engage in management. On the other hand, general partners-not only manage day-to-day operations but also assume full personal liability for any debts or legal issues incurred by the business.
What Is Limited Liability?
Liability refers to the legal responsibility for debts and obligations. When this is limited, it means that the extent of that responsibility is capped. In practical terms, limited liability ensures that one partner’s personal assets are protected from the mishaps or financial missteps of another.
In the context of LLPs, if one partner makes an error or incurs debt, their liability is confined only to their agreed share of the partnership’s obligations – they are not unduly exposed to the other partner’s misadventures. Similarly, companies operate as separate legal entities, so directors and shareholders aren’t personally liable for the company’s debts.
A simple way to understand limited liability is to view the business as its own legal person – capable of owning assets, incurring debt, and entering contracts independently of its owners.
How Is A Limited Liability Partnership Different To Other Business Structures?
There are various business structures available, and choosing between them depends on your vision for growth and your appetite for risk. A limited liability partnership can be particularly attractive if you plan to expand your operations while mitigating personal risk.
A sole trader operates independently, bearing unlimited liability for all business debts. In contrast, a company is recognised as a separate legal entity, which means shareholders and directors are shielded from personal liability.
A general partnership combines the contributions and responsibilities of partners-but without the benefit of limited liability, every partner assumes equal responsibility for the business’s actions.
An incorporated limited partnership is a hybrid structure. In this setup, while most partners enjoy limited liability, at least one partner must retain full liability to satisfy regulatory requirements. This model ensures there is always a party responsible for the business’s obligations.
How Do I Set Up A Partnership?
In NSW and other parts of Australia in 2025, establishing a limited liability partnership typically involves completing an online registration form provided by your state’s regulatory authority. For example, in NSW you can begin by filling out the registration form, which will require details about your business and the partners involved. Once your application is successfully lodged, you will receive a certificate of registration.
Once registered, your partnership is officially recognised and you can commence operations. It’s important to keep your registration details up to date and to review any state-specific requirements annually. For additional guidance on the registration process, consider checking out our Business Registration Guide.
In today’s digital age, many states now offer streamlined online portals that make the process faster and more efficient. Consulting with a legal expert is highly recommended – our article on choosing the right lawyer can help you find the expert assistance you need.
When Do I Need A Limited Liability Partnership Agreement?
As soon as you and your prospective partners decide to work together, it’s crucial to establish clear terms through a formal agreement. Ideally, this Partnership Agreement should be drafted, reviewed, and signed before you register your business. This proactive step helps ensure that if disputes arise later, your rights and responsibilities are already clearly defined.
Having a written agreement in place from the outset means that all partners understand their roles and financial commitments, reducing the likelihood of costly legal conflicts in the future.
What Does A Limited Liability Partnership Agreement Include?
A Limited Liability Partnership Agreement is a comprehensive contract that outlines the purpose of the partnership, the roles of each partner, and guidelines for decision-making, conflict resolution, and exit strategies. When setting up an LLP, you should decide on several key elements, such as:
- The motivation behind the business
- Identification of each partner
- The main postal address and bank account details
- Rights and responsibilities of each partner
- The powers delegated to each partner
- The management and operational structure
- Financial responsibilities and capital contributions
- Decision-making processes and conflict resolution methods
- Exit clauses and procedures for dissolving the partnership
It is highly advisable to seek the counsel of an experienced legal expert when drafting these agreements. Our legal experts at Sprintlaw can help ensure your partnership agreement is robust and tailored to your business needs.
| Example Tia and Andrea are setting up a limited liability partnership for their phone repairs business. They have agreed that Andrea will handle external repairs-such as fixing a cracked screen or a broken button-while Tia will manage software-related issues. Because their areas of expertise rarely overlap, they anticipate limited day-to-day consultations. When drafting their LLP agreement, their lawyer ensured that each partner’s responsibilities were clearly defined, so if either faces legal action from a disgruntled customer, the other remains protected. |
Advantages Vs Disadvantages
There are several advantages and disadvantages to running a limited liability partnership in 2025. Carefully weighing these factors will help you decide if this structure aligns with your business goals.
What Are Some Pros?
- Flexibility: LLPs offer the freedom to structure roles, contributions, and decision-making processes to suit your unique business model.
- Ease of Setup: Compared to other business structures, LLPs are relatively simple and inexpensive to establish.
- Tax Benefits: Partners report income on their individual tax returns, potentially avoiding the double taxation faced by larger companies. Income is divided according to each partner’s share.
- Protection: With limited liability, you’re not automatically responsible for your partner’s missteps, which protects your personal assets.
What Are Some Cons?
- Instability: LLPs can be more susceptible to disputes and dissolution due to their flexible nature.
- Lack of Mandatory Consultation: Since partners are not legally required to consult each other on every decision, communication may sometimes be lacking.
- Changes in Partnership: Adding a new partner or altering existing arrangements can be easier-but if done without unanimous consent, conflicts may arise.
- State-Specific Regulation: LLPs are governed by state law rather than federal law. It’s essential to review your state’s Partnerships Act for specific requirements; for example, our article on regulatory impacts offers useful insights.
Key Takeaways
A limited liability partnership offers an effective way to collaborate in business without the risk of one partner’s mistakes adversely affecting the others. In 2025, this structure continues to provide flexibility, ease of setup, and personal asset protection, though it does require solid communication and careful planning.
Deciding whether this structure is right for your venture typically requires expert advice. Regularly reviewing your arrangements with the changes in legislation and market conditions is crucial for long-term success.
If you’d like a consultation on your options going forward, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat. Additionally, staying updated with our latest resources, such as our Business Set-Up Guides and legal tips for startups, can further support your business journey in 2025.
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