Setting up a partnership is a relatively straightforward process. Like all commercial structures, you will require documents that enable you to conduct business and satisfy your legal obligations. There are three main types of partnerships:
- General Partnership;
- Limited Partnership; and
- Incorporated Limited Partnership.
Briefly, a general partnership refers to a business structure in which more than one person carries on business in common with a view to profit. A limited partnership is a business structure that was created to overcome the primary disadvantage of a partnership: the unlimited liability of partners. This structure is available in all Australian states but not in the Australian Capital Territory and Northern Territory. All limited partnerships must register with their appropriate state government.
The incorporated limited partnership (ILP) is a type of structure designed to stimulate and encourage venture capital investment. The partnership is itself a corporation. There are four main types of ILPs:
- Venture Capital Limited Partnership;
- Early Stage Venture Capital Limited Partnership;
- Australian Venture Capital Fund of Funds; and
- Venture Capital Management Partnerships
ILPs must also register with their state or territory government. Below, we set out the seven documents partnership’s typically require.
In Australia, state and territory governments regulate partnerships and so it’s necessary to check what partnership documents your particular jurisdiction requires. The documents your partnership will typically require (subject to the nature of your business) include:
- A partnership agreement;
- A registered business name;
- A bank account in the name of the business;
- Appropriate taxation registrations;
- Comprehensive financial records;
- Relevant registration certificates; and
- Appropriate licences.
1. Partnership Agreement
A partnership agreement confirms that the partners intend to carry on business in partnership pursuant to the terms in the contract. It is prudent that irrespective of the form the agreement takes (e.g. deed under seal or memorandum), it should be in writing.
The agreement must set out the respective rights and obligations of the partners – how they will conduct business and share profit and loss. It will need to provide the names and addresses of the individual partners and comprehensively note the capital contributions each has made.
The agreement should also make provision and provide procedures for the partners to make drawings. For commercial efficacy, it should clarify how the partnership signs formal documents and who has the authority to make decisions for the business. It should also specify a particular dispute resolution process and discuss procedures on the death or retirement of a partner and the admission of a new partner. It must also detail processes in the event of bankruptcy and how the partners can dissolve the partnership.
A comprehensive partnership agreement minimises the risk of disagreements between the partners and provides a written record of what each partner agreed to at a point in time.
2. Registered Business Name
If the partners wish to conduct business in a name other than their own, they will need to register a business name with the Australian Securities and Investment Commission (ASIC). They will need an Australian Business Number at the time of registration, or be in the process of acquiring one.
3. Bank Account in the Name of the Business
Although this is essential for every business, one bank account will help the partnership keep track of all income and expenditure and facilitate the keeping of accurate financial records.
4. Financial Records
All businesses need accurate and comprehensive records. For example, to calculate their annual profit or amount of tax outstanding. Nonetheless, accurate records for a partnership are essential because they provide a clear record of all capital contributions from partners and any drawings made on the part of a partner.
5. Taxation Registrations
As a commercial entity, the business must apply for all appropriate tax registrations. It will need an Australian Business Number (ABN) and a Tax File Number. It may also need to register for Goods and Services Tax (which requires an ABN). If the partnership has employees, they will need to register for their Pay As You Go obligations.
If the partnership is an ILP or limited partnerships, it must register with its respective state or territory government.
If the partnership requires any permits to carry on business, it will need to apply for those with the appropriate government department or agency.
If you have any questions about setting up your partnership or need assistance with drafting your partnership documents, get in touch with our business structuring specialists on 1300 544 755.