The partnership business structure

By definition, a partnership business structure is where two or more people start a business together. Like any partnership, there are obstacles to overcome, but you are ultimately working together to achieve common goals and success.

Advantages

  • Easier and less expensive to set up than a company.
  • Combine the resources and expertise of a number of people.
  • Profits and loses are shared between partners as specified in the partnership agreement. 
  • Greater flexibility on holidays and sick leave.

Disadvantages

  • Each partner is individually liable for debts incurred by other partners.
  • Income tax is charged at the personal tax rate
  • All partners have a right to participate in the management of the business

You work well together

Partnerships have a 14% higher survival rate than sole traders. The main reason is because your resources and expertise are pooled together. You bring different strengths and opinions to the table, and that’s what gives you an edge.

You make decisions together

It’s very common to establish a written partnership agreement to set the foundations of the business relationship. This is where important decisions are made regarding your roles, share of equity and profits, liabilities and dispute resolution. You essentially agree on the nature of your business relationship and what will happen if either of you disagree or decide you want out. If there is no written agreement, all partners are equally responsible for decisions made on behalf of the business.   

You share most responsibilities

You control and manage the business together. You share the same vision and ideas, and have the same goals. Assets and liabilities of the business are jointly owned, and your profits and your loses are split between you. The only thing that you don’t share is tax. You pay your own tax on the share of net income you receive.

You are responsible for each other

A partnership business structure does not create a separate legal entity. If the business fails, you are personally liable for the debts. Here’s the catch though, if your partner can’t afford to pay back the debt, you will still be held responsible. Many people don’t like this about the partnership business structure and choose to incorporate a Pty Ltd company instead. This gives you and your partner more protection with limited liability.

Click here to find out more about companies.

Becoming a Partnership

It's really easy and inexpensive to set up a partnership business structure. All you need to do is apply for a partnership ABN and a business name. A partnership also requires it’s own Tax File Number (TFN), which you can apply for on the ABN application form.

If established correctly, a partnership business structure has the potential to blossom into a successful business relationship. Yes you share the profits, but you also share common goals and visions and you work together to achieve them.  

Shaun Meltzer