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A partnership involves two or more people (but no more than 20, with some exceptions) going into businesses together in order to make a profit.
In most cases a partnership will need to register a business name with the Australian Securities and Investments Commission (ASIC) unless it uses the surnames of all the partners involved.
Get practical help from the ATO website:
ATO partnership essentials
For tax purposes, a partnership is an association of people who carry on a business as partners or receive income jointly.
Partnerships and partners
The partnership doesn’t pay income tax on the income it earns. Instead, you and each of your partners pay tax on the share of net partnership income you each receive.
Partnerships and losses
Partnership income is taxed in the hands of the partners. If a partnership makes a tax loss, each partner has a proportionate share of the loss, and treats it like a loss from any business activity (including applying the limits on offsetting losses from business activities against non-business income).
A partnership is a relationship, not a separate legal entity. Each partner jointly owns all the business assets and liabilities. It’s vital that each partner knows their rights, responsibilities and obligations.
Seek the help of a qualified professional to prepare a written partnership agreement.
The agreement should also state each partner’s role and level of authority, their expected financial contribution and a clear procedure for dispute resolution and dissolving the partnership.
This is important because personal liability is unlimited for each and every partner in the business.
If the business fails and your partner can’t afford to pay their share of any debts incurred, you will be held liable for the shortfall. You are also jointly responsible for any debts your partner incurs, with or without your knowledge.
Where there is no agreement in place, each partner is deemed to own equal shares of each asset as prescribed by the Partnership Act 1895.
SBDC business brief: partners in business
SBDC small business briefs are summaries of essential information about popular business topics.