Partnership

A partnership is formed when two or more people (up to 20) go into business together with a view to making profit. 

As with sole traders if the partners are operating under their own names there is no need to register but they must register a business name if they have one. A partnership has its own Tax File Number (TFN), and usually an Australian Business Number (ABN) and lodges its own, separate tax return. There is also no legal requirement for a written agreement, although it is better if there is a document that sets out the full extent of the relationship between the partners. 

Advantages

• partnerships are not expensive to set up and you have access to more capital
• you have pooled knowledge, experience, skills and ability to take time off 
• there are certain tax benefits where the partners are in the same family, such as husband and wife

Disadvantages

• as the business develops personalities may clash and there may be disputes over administration and profit sharing
• partners can be individually and collectively be liable to the defaults of other partner(s)
• if a partner decides to dissolve a business, it may effectively end the business

Limited partnerships

Limited partnerships differ from conventional partnerships in that they are made up of general partners, who manage the business, and limited partners, who are passive investors in the business and do not contribute to its management. Limited partners are liable for financial debts in proportion to their investment.

The benefit of a limited partnership is that the business can attract capital investment. Limited partnerships must be registered with Consumer Affairs Victoria (see External Links to the right for more details).

Partnership agreement

Although partnership agreements can be verbal; it is recommended that a written partnership agreement be prepared with the input of all partners and the advice of a solicitor.

Some of the matters it needs to cover include:

• the nature of the business
• the role and authority of each partner
• proportion of ownership of each partner
• each partner's liability to contribute funds
• the manner of dissolution
• the distribution of assets on dissolution
• the resolution of disputes

If you're planning to use a business name, register it with Consumer Affairs Victoria (CAV). Limited partnerships and incorporated limited partnerships must be registered separately from the business name with CAV. General partnerships, also referred to as 'partnerships', do not need separate registration.

Taxation

A partnership has its own Tax File Number (TFN), and usually an Australian Business Number (ABN) and lodges its own, separate tax return. However, once the Tax Office (ATO) assesses this, the partnership’s profits are divided among the partners as set out in the partnership agreement.

Each partner then adds their share of the profit (or loss) to their personal income tax for assessment by the ATO.

If operating as a business enterprise, the partnership registers to collect GST when annual turnover passes $75,000 (payable monthly, quarterly or annually). The ATO's 'personal services income' rules may apply if you are a consultant or contractor in a partnership.