Partnership Business Structure Guide

What is a partnership?

A partnership is formed when two or more people (up to 20) go into business together. Partnerships can either be general or limited.

A general partnership is one where all partners are equally responsible for the management of the business, and each has unlimited liability for the debts and obligations it may incur.

A family partnership is where two or more members are related to one another.

A limited partnership is one where the liability of one or more partners for the debts and obligations of the business is limited. A limited partnership consists of one or more general partners (whose liability is unlimited) and one or more limited partners (whose liability is limited in proportion to their investment). There is no maximum number of limited partners.

Get more information and guidance about limited partnerships from the Consumer Affairs Victoria website

An incorporated limited partnership is a special type of limited partnership, primarily used by businesses engaged in high-risk venture capital projects. You should seek expert legal advice if considering forming this type of partnership. More information can be found in our incorporated association section

Limited and incorporated limited partnerships must be registered with Consumer Affairs Victoria (CAV).

Partnerships are governed by the Partnership Act 1958 (available at the Victorian Legislation and Parliamentary Documents.)

Partnership - is it right for me?

Advantages

Disadvantages

you have pooled knowledge, experience and skills
there are certain tax benefits where partners are in the same family, e.g. husband and wife
compared with a general partnership, registering as a limited partnership encourages capital investment into the business, due to the limited liabilities

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

Note: You're not locked in. As your business grows or changes direction, you can change your business structure to suit your circumstances. Complete our quick quiz Step-By-Step: Choose the right business structure for you to find out which business structure suits your needs best.

Get started with our Partnership starter pack

Regardless of whether you intend to set up a general, family, limited or incorporated limited partnership, you need to do the following:

determine the number of partners - both general and limited (if any). Agree amongst the partners on key issues such as limits of liability in proportion to their capital investment and the level of authority each partner holds in making binding agreements on behalf of the partnership

it is recommended that you draw up a Partnership Agreement highlighting key aspects such as the roles, authority and liabilities of each partner, and distribution of profits and assets. Use our Find an Adviser to search for an experienced solicitor to assist in preparing the Agreement. Look at a sample Partnership Agreement on the Australian Society of Entrepreneurs website

apply for a business Tax File Number (TFN) and an Australian Business Number (ABN) for the partnership

apply to register a business name with ASIC - you will need to register it if you and your partners are not trading under your personal names

Additionally, if you are setting up a limited partnership or incorporated limited partnership, you need to do the following:

register with the Consumer Affairs Victoria (CAV) - limited partnerships cost $626.50 in registration fees and incorporated limited partnerships, $500

once your application is approved, a certificate of registration will be issued, which proves the partnership was formed on the endorsed date of registration. This certificate must be displayed at the registered office of the limited partnership. You must include the words ‘A Limited Partnership’ next to your business name on all stationery and documents.

Things to consider

Business name - must I register it?

If you are operating under your own personal names there is no need to register but you must register a business name if you have one. A partnership has its own TFN, and usually an ABN and lodges its own, separate tax return.

Partnership agreement - do I really need one?

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. This helps to clarify roles, responsibilities, assets and liabilities of each partner, in the event of disputes or dissolution of the partnership.

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

Taxation - what do I need to know?

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 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.

For details on how to lodge a partnership tax return, visit the ATO website.

Our Tax Deductions section will also have more information on business expenses which are tax deductable.

Dissolving a partnership - what happens?

If a partnership is to be dissolved, find out more in our Dissolving a Partnership section which highlights the obligations that you still need to meet.

Need further help?

Use the Australian Business Licences and Information Services (ABLIS) to help you find the licences and registrations your business needs and build a personalised information pack to save, email or view online

our Step-By-Step: Choose the best business structure for you can give you a simple & quick assessment of which structure is more suitable for your business

our Find an Adviser search service can help you locate an accountant or lawyer in your area to help you on tasks such as applying for ABN, a business TFN and PAYG witholding. A solicitor experienced in drawing up Partnership Agreements will be able to help you clarify and document the roles, assets and liabilities of each partner

Business Victoria's Starting Your Own Business workshops will help you to find out what you need to do before you set up your business.

call Business Victoria on 13 22 15 if you need further help