What is a partnership?
A partnership is but one of the many different ways in which to operate a business. Depending on your circumstances or your situation, there may be benefits of operating as a partnership rather than as a corporation. Whether a partnership is right for you will depend on your business objectives, purpose and unique character. A Sydney chartered accountant or Sydney accountant can help you determine which structure is suitable for you. Specifically, our Sydney chartered accountants and Sydney accountants are highly experienced in helping individuals, families and partners set up new businesses.
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.
Generally speaking, 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.
How can a partnership be created?
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 the Business Names Act 2002. The Partnership Act 1982 will also apply unless specifically excluded in the partnership agreement.
Limited Liability Partnerships
In New South Wales it is also possible to have a limited liability partnership. A limited liability 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.
Tax Benefits of Partnerships
The tax benefits of a partnership may include 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.
We invite you to contact our Chartered Accountants now for any advice on business structures.
This webpage (and any material or wording appearing on this webpage) is provided for general information purposes only and does not constitute any Tax or Accounting Advice. It does not take into account your objectives, financial situation or needs or your instructions or all of the relevant facts and/or circumstances. Navado accepts no responsibility to any person who relies on the information provided on this website. We further refer you to our Disclaimer.
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