What is a partnership?
A partnership is formed when between 2 and 20 people go into business together. Partnerships are governed by the Partnership Act 1958.
Types of partnerships
Partnerships can either be general or limited, which indicates the level of liability taken on by the partners.
A general partnership is one where each partner:
- is equally responsible for the management of the business
- has unlimited liability for the debts and obligations it may incur.
A family partnership is where 2 or more members are related.
A limited partnership is one where one or more partners has limited liability for the debts and obligations of the business, while the rest of the partners have unlimited liability. A limited partner's liability will be in proportion to their investment in the business. There's no maximum number of limited partners.
Limited partnerships must be registered with Consumer Affairs Victoria (CAV).
Incorporated limited partnerships
An incorporated limited partnership is a special type of limited partnership, mainly used by businesses involved in high-risk venture capital projects.
See incorporated association for more information.
Get legal advice if you're considering this type of partnership.
How to register as a partnership
Once you've decided that a partnership is the right structure for you, follow these steps:
- Determine the number of partners and whether each partner will be general or limited.
- Agree with 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.
- Draw up a partnership agreement that highlights the roles, authority and liabilities of each partner, and distribution of profits and assets. See LawDepot's sample partnership agreement template on what areas it should cover. Have your solicitor draw up an agreement that meets your specific needs.
- If you're using a business name instead of your personal names, check that your proposed business name doesn't infringe on existing trademarks.
- Register your business name.
- If setting up a limited partnership, register your partnership with Consumer Affairs Victoria (CAV).
- Apply for the relevant licences and registrations.
- Find the right insurance for your business.
Licences and registrations for a partnership
Your business name
If you want to operate under a name other than the partners personal names, you must register it as your business name.
Tax file number and business number
A partnership has its own tax file number (TFN) and often an Australian business number (ABN). It will use these to lodge its own tax return.
Other licences and permits
Check the Australian Business Licence and Information Service (ABLIS) to find other local, state and federal licences, registrations and permits that you need for your business.
Other things to consider
How profit is distributed
Once the ATO assesses the partnership tax return, the partnership's profits are then divided between 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.
Other tax obligations
Personal services income
The ATO's personal services income rules may apply if you're a consultant or contractor in a partnership.
Goods and services tax
If operating as a business enterprise, the partnership registers to collect goods and services tax (GST) when annual turnover passes $75,000 (payable monthly, quarterly or annually).
If you employ people, you'll be responsible for paying:
- employee payroll tax and PAYG, including reporting and paying fringe benefits tax
- superannuation for eligible employees.
See the ATO's information on partnership tax returns for help when filing your return.
Superannuation for partners
As a member of a partnership you're not an employee, so you're responsible for paying your own super.
You might also be able to claim a deduction for your super contributions as part of your personal tax return. Check with the ATO to see if you're eligible.