A partnership is an agreement entered into where the founding members agree to share both the rewards and consequences of a business. A partnership is favoured because of its simplicity. As part of the establishment of a partnership, a partnership agreement is created by the founders which details the terms under which the business will operate. The only other time in which the agreement needs to be amended is when a partner enters into the agreement or if a partner retires from the partnership. The main drawback to the partnership is that each partner, unless specified otherwise in the partnership agreement, is jointly liable for the actions of the both the partnership the individual partners
A partnership is defined as a relationship between persons carrying on a business in common with a view to profit. As such, the partners in a firm are those directly carrying on the business. Anyone able to enter into a contract is able to become a partner. It is also important to state that the partners share liability in the event that the firm incurs debts.
While a partnership can be established through oral agreement or implied by conduct, most partnerships are created through a written agreement referred to as a partnership agreement. This agreement typically stipulates the conduct under which the partnership will be run and details which may be used to help settle a dispute at a later date.
Individuals participating in the business will need to follow laws relating to their business field. For example, an electrician carrying on a business will need to be licensed. It is important that before starting any business, the founders are aware of these stipulations to avoid disputes later.
If the business is being carried on under any name other than that of the full name of its founders, then the name needs to be registered with ASIC. This is a simple and inexpensive process but still required in Australia.
An Australian Tax File Number (TFN) is a personal reference number for taxation purposes. While a TFN is not required for personal use, but the tax fees are substantially higher without one. Furthermore, without a TFN it becomes impossible to obtain an Australian Business Number.
Every business after July 2000 is required to have an Australian Business Number (ABN)[Link to a ABN Application page], which can be attained through the Australian Taxation Office (ATO).
If the business has a GST turnover of $75,000 or more a year in income, the they are required to register their business for GST.
Rachel and Bill are hairdressers operating out of the same building. They established a general partnership agreement two years ago to enable them to work together and they both contribute funds to the business. The partnership allows them to pursue their own clients while still generating business for their partner. In this way, Rachel and Bill are able to take advantage of the positive aspects of the partnership. They are able to avoid the negative aspects of the partnership, such as joint and several liability, by operating in an industry in which they are unlikely to be sued.Example 2:
Ted and Thomas have worked in advertising for other companies since they graduated university. They are considering starting a business together and their advisor suggested a partnership as creating a partnership is a simple process and remarkably inexpensive. The partnership would allow Ted and Thomas to diversify their client base and hire employees to supplement their work load. In addition, as they work in an industry in which they are unlikely to be sued.