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How to form a business partnership in Australia

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Starting a business partnership can be an exciting and profitable venture, but it's important to take the necessary steps to form a legal partnership to protect yourself and your business. In this article, we'll walk you through the steps to form a legal business partnership in Australia.

What is a partnership?

A partnership is where two or more persons or entities carry on a business with a common view to profit.

A partnership is not a separate legal entity. In general, the partners will be jointly and personally liable for the obligations that arise from the partnership. However, it is possible to form a limited partnership (whether incorporated or unincorporated) in most states and territories, with a few exceptions.

Types of partnerships

In general, there are 3 main types of partnerships:

  1. General partnership:

  2. Limited partnership:

  3. Incorporated limited partnership:

Advantages and disadvantages

Advantages

The advantages of a partnership include:

  • easy to establish;

  • few reporting and compliance obligations and compliance;

  • relative degree of privacy;

  • taxation advantages (the ability to distribute losses and certain capital gains tax concessions);

  • responsibility and control is shared; and

  • the availability of finance can be greater with multiple parties.

Disadvantages

The disadvantages of a partnership 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; and

  • 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.

Requirements and limitations

Although there is no legal requirement for a written agreement to be in place for a partnership to be valid, it is important to have such have a partnership agreement in place, signed by all the partners. Without an agreement, any partner can terminate the partnership at any time they want or in the event of their death.

Commencing a business as a partnership

Choose Your Business Partner(s)

The first step in forming a business partnership is to choose your partner(s). You'll want to find someone who shares your vision for the business and has complementary skills and expertise. You'll also want to ensure that your potential partner has a good personal and professional reputation and is trustworthy.

Register Your Business Name

Once you have chosen your partner(s), you'll need to register your business name. This can be done online through the Australian Securities and Investments Commission (ASIC). You can check to see if the business name you want is available by searching the ASIC database.

Obtain an ABN

You'll need to obtain an Australian Business Number (ABN) for your partnership. An ABN is a unique identifier that is used by the Australian government to track businesses for taxation purposes. You can apply for an ABN online through the Australian Business Register.

Draft a Partnership Agreement

A partnership agreement is a legally binding document that outlines the terms and conditions of your partnership. It should cover important topics such as the division of profits and losses, decision-making processes, and dispute resolution procedures. You should consider hiring a lawyer to help you draft a partnership agreement.

Important considerations in commencing business under a partnership structure will be obtaining necessary registrations and ensuring an appropriate partnership agreement is drafted, but a lack of these things will not affect the existence or validity of the partnership itself.

Costs of establishment can be confined to business names and other registrations for which fees are charged and costs of obtaining professional advice.

For a full list of everything that you need to do to form a partnership, you can download and read the Partnership Agreement Kit, including templates to draft your partnership agreement. Or, we can assist you to draft a partnership agreement for a fixed fee.

Ongoing compliance requirements

A partnership will have ongoing compliance obligations with various regulatory requirements which will include taxation reporting and compliance, keeping business names and other registrations up-to-date. Partners should also have regard to their duties both to each other and to outsiders.


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This article contains information of a general nature only and is not specific to your circumstances. This is not legal advice and should not be relied upon without independent legal or financial advice, specific to your circumstances. If you need legal advice, please seek advice from a qualified person such as a solicitor.