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We often hear clients setting up a business with another person mention they have a partnership or want to set up a partnership. But what they really mean is they have a business partner and they want to set up a company. In 2025, many entrepreneurs are opting to establish a company instead of a traditional partnership to gain enhanced protection and flexibility.
Having a business partner is completely different from the legal term ‘partnership’. A partnership is a type of business structure that is defined by statute in each state or territory. Many business owners are now exploring the benefits of incorporating a company – as detailed in our company structure versus partnership guide – to limit personal liability while still enjoying the benefits of collaboration.
A partnership business structure works in a similar way to a sole trader, in that no separate legal entity is created. However, rather than one person making all the decisions as in a sole trader setup, a partnership requires at least two people who jointly control the business and share its income and losses. For additional insights on alternative structures, check out our quick tips for company registration.
Each partner is personally liable for the debts and losses incurred by the business, making them responsible for the decisions made by both themselves and their partners. Although partnerships are relatively straightforward to set up, this personal liability can expose you to significant risk. As a result, many co-founders in 2025 are considering a company structure which provides a separate legal entity and limits personal risk.
What Are The Types Of Partnership?
Partnership business structures continue to operate under different rules depending on the state or territory. It’s essential to consult current legislation or obtain legal advice to ensure compliance, as statutory requirements may have evolved this year.
For example, in NSW there are three recognised forms of partnership under the Partnership Act. It is advisable to refer to the latest version of this legislation to ensure you meet all current requirements.
1. Normal Partnership
- Does not need to be registered and is the simplest form.
- May be used between family members or close associates.
- Is the most common type of partnership we encounter at Sprintlaw.
2. Limited Partnership
- Needs to be registered.
- Consists of general and limited partners who incur different liabilities and obligations.
- General partners have unlimited liability and manage the daily operations.
- Limited partners have their liability restricted to the amount they invest and typically do not participate in management.
- Better suited for capital raising, as limited partners can invest passively.
- Can be particularly useful for small businesses that need extra funds without the full reporting obligations of a company.
- Commonly utilised in creative ventures, real estate developments, mining, agricultural projects, and emerging tech start-ups – sectors we regularly cover in our Intellectual Property and online business guides.
3. Incorporated Limited Partnership
- Needs to be registered.
- Widely used for venture capital purposes.
- This structure offers enhanced creditor protection and is favoured by investors, especially in high-growth sectors in 2025.
How Do I Set Up And Maintain A Partnership?
To set up a partnership, one or both partners must apply for an Australian Business Number (ABN). If your annual turnover is, or is expected to be, over $75,000, GST registration is mandatory. In addition, your partnership will need its own tax file number (TFN) to comply with Australian Taxation Office requirements in 2025. For a detailed overview of the registration process, see our Register a Business in Australia guide.
You should also have all partners sign a Partnership Agreement that is specifically tailored to your business’s needs. This document outlines who makes decisions, how profits and losses are shared, and what happens if a partner wishes to exit the business. Establishing clear, well-documented terms from the beginning can help prevent disputes later on.
With legislative updates and evolving business practices in 2025, it is vital to review and, if necessary, update your partnership agreement regularly. This ensures that it remains compliant with current laws and accurately reflects your business operations. For more insights, check out our Guide to Changing Your Business Structure.
Each year, partnerships must lodge a tax return. Compared to running a company, partnerships involve considerably less paperwork and reporting obligations. However, as your business grows, it might be wise to reconsider if a partnership structure remains the best fit. Our updated Business Structure Considerations provide current advice for 2025.
What Happens When A Partnership Ends?
A partnership may come to an end for several reasons. For example, the business might become insolvent, a partner may decide to retire or exit, or the partnership could have a fixed term as specified in the Partnership Agreement. Planning for such eventualities at the outset is essential to avoid complications later on.
If any of these situations arise, the partnership is dissolved in accordance with the terms set out in the Partnership Agreement. In the absence of such an agreement, the dissolution must follow the latest state or territory partnership legislation. Consulting legal experts can help ensure the process is handled smoothly.
Finally, to formally conclude the business, partners may sign a Partnership Dissolution Agreement. This document clarifies the division of assets, settles outstanding debts, and outlines any other final arrangements, ensuring a clear break as you move forward in 2025.
What Next?
Here at Sprintlaw, we’ve spoken with many clients who have reached out for legal guidance when their partnerships needed to be dissolved, often because they never established a formal Partnership Agreement. As business structures and legal requirements evolve in 2025, having the right documents in place is more important than ever.
Setting up a comprehensive partnership agreement can prevent future disputes and provide clarity for all parties involved, whether you are partnering with a friend, family member, or business associate. Don’t hesitate to contact us if you need help deciding on your business structure, drafting a partnership agreement, or navigating the dissolution process. You can reach us for a free chat on 1800 730 617 or email us at team@sprintlaw.com.au.
Remember, choosing the right business structure is not a one-time decision. As your business grows, your needs may change, and what worked best for you in 2025 might need revisiting in the future. Regularly reviewing your organisational structure and legal documents is key to staying compliant and supporting your long-term business goals. For additional resources, explore our Business Set Up and Legal Compliance guides.
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