Business Partnership Structure

This is Part Two in our four-part series about the four most commonly used business structures in Australia — 1) sole trader, 2) partnerships, 3)  companies and 4) discretionary rusts — to help you decide what business structure is right for you.

We also cover business structures in the Establish Legal Risk and Management module of our Small Business Management Course, as well as the implications each of the four different structures can have on how you borrow money, and even how much tax you pay.

Business Partnerships

A partnership is a relationship, not a separate legal entity, and involves two or more people (but no more than 20) going into business together.

In a partnership each partner jointly owns all the business assets and liabilities. For a partnership to be a success, it’s vital each partner knows their rights, responsibilities and obligations.

Before entering into a partnership you should seek the help of a qualified professional to prepare a written partnership agreement. This agreement should state each partner’s role and level of authority, their expected financial contribution and a clear procedure for dispute resolution and dissolving the partnership.

Advantages of a business partnership

• Partnerships are easy and inexpensive to set up.
• There are minimal reporting obligations.
• There is greater access to finances from the resources of each partner (as opposed to going solo).
• There are more people to share the workload.
• There are more people to share the losses and legal responsibilities.
• Combined skills, experience and knowledge can help provide a better product.

Things To Consider

• You must share the profits with the other partners.
• Potential for disputes over profit sharing, administrative control and business direction.
• You and your partners are responsible for the debts of the partnership, even if you do not directly incur or cause the debt.
• You can lose your assets such as your home, contents and vehicles to settle debts in the partnership.
• Changes of partnership can be difficult and generally require a new partnership to be established.

Reporting and Paying Income Tax

• Although your business partnership does not pay tax, you need to lodge an annual partnership income tax return on behalf of the business to show the total income earned and deductions claimed by the business.
• As a partner, you need to pay tax on your share of the partnership income (less expenses) you earn.
• Under a partnership, each partner is liable for the tax debts of the partnership.

Paying Superannuation

• As a member of a partnership, you’re responsible for making you own superannuation contributions, as you’re not an employee of the business.
• You may be able to claim a deduction for any personal super contributions you make.
• The partnership must pay super contributions for any eligible workers they employ.

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Entering into a business partnership with one or more business partners is a great way of getting your business off the ground by pooling the knowledge, experience, skills and resources of each partner together.

This information is only offered as a guide and, of course, you should consult an accountant, tax professional, solicitor or business advisor before deciding which business structure to use.

Need Help with your Partnership Agreement?

If you are interested in exploring a business partnership you’ll be happy to know that we have created a business partnership course, including business partnership template that you can use to discuss the important clauses with your business partners and solicitor.

Learn more about the Business Partnership Template and Course..

Our next post in the Business Structures Explained series is: Companies.