The small business specialists
Phone: 13 12 49
A partnership involves two or more people (up to 20, with some exceptions) going into business together with a view to making a profit. In Western Australia, partnerships are governed by the Partnership Act 1895.
There are two types of partnership – general and limited.
A general partnership is where all partners participate to some extent in the day-to-day management of the business.
A limited partnership is one formed by up to 20 people. It has at least one general partner who controls the company’s day-to-day operations and is personally liable for business debts, and passive partners called limited partners.
A limited partner contributes a defined amount of capital to the business, but is not otherwise liable for its debts or obligations. The Department of Commerce has administrative responsibility for the Limited Partnerships Act 1909 in Western Australia.
Before entering into a partnership it is advisable to have a lawyer prepare a formal agreement outlining:
It is important to have a formal agreement because personal liability is unlimited for each partner.
You will be held liable for any shortfall if the business fails and a partner can’t afford to pay their share of any debts. You are also jointly responsible for any debts your partner incurs, with or without your knowledge.
If there is no agreement in place, each partner is deemed to own equal shares of each asset.
For more information read our small business brief: Partners in business
A partnership doesn’t pay tax on its income. Instead, each partner pays tax on the share of net partnership income each receives.
For more information regarding tax obligations for partnerships visit the ATO website.