What Is a Partnership?
A partnership is a business structure where two or more people share ownership, responsibilities, and profits. Unlike companies, partnerships are relatively straightforward to set up and manage, making them an attractive choice for startups and small ventures.
Key Features of a Partnership in Australia
If you’re considering forming a partnership, here are the essentials you should know:
- Simple Setup and Low Costs
- Partnerships are quick and inexpensive to establish.
- They come with fewer reporting requirements compared to companies, which means less paperwork and lower compliance costs.
- Tax and Legal Obligations
- Each partner must have their own Tax File Number (TFN).
- The partnership itself needs to apply for an Australian Business Number (ABN) for all business dealings.
- Partnerships don’t pay income tax as an entity. Profits are distributed among partners, and each pays tax on their individual share.
- A partnership tax return must still be lodged annually with the Australian Taxation Office (ATO).
- If your turnover reaches $75,000 or more, GST registration is mandatory.
- Shared Management and Responsibility
- All partners take part in managing the business and making decisions.
- Each partner is responsible for their own superannuation, as they are technically not an employee.of the partnership.
Potential Pitfalls of a Partnership
Partnerships can be a practical and flexible business structure, but they also come with risks that shouldn’t be overlooked. Here are some common challenges to watch out for:
- Personal Liability – In a standard partnership, each partner is personally responsible for the debts of the business. If the partnership can’t meet its obligations, creditors may pursue your personal assets.
- Responsibility for Others’ Actions – You’re not only accountable for your own decisions but also for those made by your partners. A poor choice or mistake by one partner can affect the entire business.
- Disputes and Misalignment – Differences in vision, work ethic, or financial expectations can create conflict. Without clear processes in place, disagreements may escalate and damage the partnership.
- Uneven Contribution – At times, one partner may carry more of the workload or contribute more resources than the others, which can lead to frustration if expectations aren’t clearly defined from the beginning.
- Challenges When Someone Leaves – If a partner decides to step away, it can create financial, legal, and operational complications that may disrupt the business.
By being aware of these pitfalls, you can take steps to reduce risk such as setting up a detailed partnership agreement and getting professional advice early on.
Why You Need a Partnership Agreement
While not legally required, drafting a partnership agreement is strongly recommended. This document can outline:
- Roles and responsibilities of each partner
- How profits and losses will be shared
- Decision-making processes
- Methods for resolving disputes
- Exit strategies if someone leaves the business
Having everything in writing helps avoid confusion and protects everyone involved.
Is a Partnership the Right Choice for You?
A partnership can be a fantastic way to combine skills, share resources, and build something together. But it also comes with shared risks and liabilities. That’s why it’s crucial to make sure all partners are on the same page regarding business goals, values, and expectations.
Pro Tip: Get Professional Support
Running a partnership isn’t just about teamwork. It’s also about keeping the finances in order. A bookkeeper who understands partnership structures can help you stay compliant, manage cash flow, and give you peace of mind that your numbers are accurate.
👉 If you’re ready to explore partnerships but not sure where to begin, book a free complimentary call so we can guide you every step of the way.
