Partnerships can be great to spread the responsibility of the business around
You and your partners carry on a business together and share income, losses, and control of the business. The partnership can employ staff, but the partners in the partnership are not considered employees.
A partnership structure is relatively inexpensive and easy to set up and operate.
In a partnership structure, you and your business partners own the business together and share the income and losses of the business. A partnership can have two or more partners.
Each partner reports their share of the income on their own individual tax return, and pays tax at their individual marginal income tax rate. The partnership must lodge a partnership income tax return every year with the Australian Taxation Office (ATO).
Click here to learn more about partnership tax returns.
A partnership needs its own TFN separate from individuals within the partnership.
All partners share legal responsibility for the business. This means the personal assets of all partners are at risk if things go wrong. If some partners want to limit their responsibility for business losses, you might want to consider a limited partnership structure.
In a limited partnership, there are two types of partners: a general partner and a limited partner. There must be at least one of each.
General partners are responsible for the day-to-day management of the business and their responsibility for losses (their liability for debt) is unlimited. Limited partners don’t play any role in the day-to-day management of the business, and their liability for debt is limited to the amount they contributed to the partnership.
You must register a limited partnership in your state or territory. Click here to find out more about registering your limited partnership.
Key facts for partnerships
- Cost – low cost to set up and run
- Setting up process – relatively easy
- Owner – you and your partners
- Responsibility for business decisions – you and your partners share
- Responsibility for losses – you and your partners share
- Report business income – each partner reports their share in their individual tax return
- Tax rate – all partners pay their individual tax rate on their share of any business profit
- Risk of losing assets – yes
- Additional administration – if partners’ shares aren’t equal, a partnership agreement is required
- Business tax file number (TFN) needed – yes
- Additional reporting – yes, an annual partnership return must be lodged at the ATO under the business TFN
- Separate business bank account needed – yes
- Your superannuation – you’re not considered an employee, so you’re responsible for organising your own superannuation.