Partnership is defined by the Partnership Act 1892 as “the relation which exists between persons carrying on a business in common with a view of profit and includes an incorporated limited partnership. There are three legal features of the partnership that are fundamental:-
- the non-existence of a distinct entity status for the partnership;
- unlimited liability of the partners for the partnership debts and other obligations; and
- generally limited to between 2 and 20 partners.
Unlike companies where there is a distinct legal entity able to incur debts and obligations in its own name (as well as to sue and be sued), in a partnership the partners retain personal joint and several liability for any debts incurred during the partnership, even if the partnership is dissolved.
The partnership enterprise itself cannot be convicted of a crime or sued in tort or contract in respect of acts done by the enterprise. Rather, the individual partners are usually directly liable for any wrongs committed by the partnership enterprise.
The Partnership Act 1982 and common law create a number of rights and duties upon partners in a firm, including the sharing of profits and losses, limited indemnity of partners against costs accrued, sharing of management rights, access to books and records, fiduciary duties between the partners, a principal-agent relationship applying to each partner and a duty not to compete with the partnership enterprise.
A partnership can be created in many ways; verbally, in writing (usually by way contract or a deed) or by conduct. While there is no set form a partnership agreement must take, it is important to ensure that it is compliant with the law. For instance if the partnership agreement is to last longer than 12 months, it must be in writing. Further, if the partners wish to trade under a business name, then that name must be registered under theBusiness Names Act 2002. The Partnership Act 1982 will also apply unless specifically excluded in the partnership agreement.
In New South Wales it is also possible to have a limited liability partnership. A limited partnership must be registered and have at least one general partner who has unlimited liability and management control and one or more limited partners whose liability is limited to the capital they have paid in or promised to pay in. Limited partners are not to take part in management and if they do they may be treated as general partners.
The tax benefits of a partnership are income splitting, allowing funds to retain their character. Partners may apply partnership losses against personal income from all sources. Rollover relief is available if a partnership wishes to change to a company structure. Small and CGT concessions may be utilised.
Our team of Sydney Commercial Solicitors can properly advise, draft and review your partnership agreement to ensure it complies with the law and reflects all the partners and the firm’s intentions.
Comments (0)
Add a Comment