Company versus Partnership – Which is better?
Partnership versus corporate structure, what’s the difference and what’s right for you? Well, stick around and I’ll tell you my views on that.
Hi everyone, Simon here from The Contract Company, contracts, that’s what we do all day, every day and sometimes overnight.
The Difference Between Company versus Partnership Structure
Right now you got two main different types of structures, you’ve got a partnership structure and a company structure.
A partnership structure is where people get together. So, they form a partnership, but they do so as individuals.
What that means is let’s say you have a partnership of three people who form say a law firm, because that was traditionally the structure.
That means that the three individuals, sorry, because a partnership can’t or does not have a separate legal entity. So, the partnership itself is not a separate legal entity, it’s the three individuals that form the partnership.
In this case, each of those three individuals is the three legal entities of the partnership.
What that means is is that if something goes wrong or if one partner racks up debts, it’s the other two partners that have to try and pay off that other partner’s debts.
So, one partner is usually liable for the debts of the other. Now, you can do those fancy things in partnership agreements to try and make that not the case, but that’s generally how it works.
And for that reason, I think you’d wanna avoid them like the plague, to be honest.
Corporate / Company
So, a company structure, on the other hand, a company, once it’s formed,. Once you register a company with ASIC, pay your fees, et cetera, and you own a company, the company itself is a separate legal entity.
And that means that the company itself can enter into contracts and do that sort of thing. That way, let’s use the example of the three people.
If you have three people as a company structure, the company is a separate legal entity. Those three people just own shares in the company.
Should the company fall over, then these three people are only limited or their only exposure, assuming they’re not directors, but let’s just say that they’re shareholders, their only exposure is the amount they paid for the shares.
Whatever they paid for their shares is the amount they could lose, otherwise, no issue.
So Is It Company or Partnership?
So, that’s why I think and I said it at the start of this video, you don’t ever wanna go near a partnership structure.
I would always go for a company structure. The downside with company structures really is just the cost in terms of setting them up and you have to get annual returns and that sort of thing, and you know, there are filing fees with ASIC each year.
Not a lot more than a partnership structure, but it is a bit more. But I think the cost is far more beneficial than the potential downside of the extra money.
So, the benefit of having the company structure far outweighs the detriment of having to pay a little bit more money. Anyway, that’s my view on a company versus partnership structure, and some else may have a different view but that’s how it is.
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