When you’re starting a business, you need to choose the right structure if you want your venture to thrive. A business partnership might be the right option for you if you don’t want to run the business on your own, but you still want a reasonable degree of flexibility and control.
Here’s everything you need to know about business partnerships, how they work, and how to set one up.
What is a partnership business?
There are four different types of business structure you can choose if you are setting up a business in Australia:
- Sole trader
The structure you choose will depend on the needs of your business.
A partnership is a popular structure because it gives you similar levels of control over the business that you would enjoy as a sole trader, but with the added security of having other people responsible for the business as well as yourself.
A business partnership can consist of between two and 20 people. It could be just you and one other business partner, or it could involve as many as 19 other people alongside you.
How does a business partnership work?
A business partnership is defined in law as “the relationship which subsists between persons carrying on a business in common with a view to a profit.”
This means you and all the other people in the business partnership jointly own the business between you. You are all in control of the business, and you all have decision-making rights. Any money made by the business belongs to all of you.
Business partnerships also have a number of other advantages. It’s relatively easy and cheap to set up a business partnership, and it offers opportunities when it comes to tax planning and offsetting any tax losses against your personal income.
However, the business isn’t a legal entity in its own right. Each business partner pays tax on their own share of the net income from the partnership. If your business has debts, you and your business partners are all personally liable for them. In addition, the shared nature of a business partnership means that there can be disputes over the running of the business and financial arrangements.
Setting up a business partnership
Before you enter into a business partnership, you should sit down with all your prospective business partners and discuss all the vital issues, including:
- What each partner’s role in the business will be
- How much authority each business partner will have
- The financial contributions each partner will make
- What happens if someone wants to resign from the partnership or you want to dissolve it completely
You then need to have a lawyer draft a Partnership Agreement, which all partners need to sign, making your partnership legal.
Once the partnership has been formalised, you need to apply for an Australian Business Number, which you must use for all business dealings. You will also have to lodge a partnership tax return with the Australian Tax office (ATO) each year. If the annual income of your partnership is over $75,000, you will also need to register for GST.
Find out more about setting up a business partnership
A partnership business can be extremely rewarding, but there are many issues to consider when setting up. You also need to remember that the laws surrounding business partnerships differ between states and territories in Australia, so your partnership needs to comply with the law in the region where your business is based.
It is essential to get the right advice from an experienced professional when setting up your business partnership. If you would like to find out more, please contact us here at Cigno Business, and we can help to make the process smooth and simple for you.