If you are looking to start a business with a friend, family member or colleague, a partnership may be the best business structure for you. However, this will depend on what you would like to achieve with the business. You should first consider the pros and cons of a partnership structure. If you decide to move forward, you will also need to understand the steps involved in getting your partnership up and running. This article outlines six steps you will need to follow to start your business as a general partnership in Australia.

What is a Partnership Structure?

Each state and territory in Australia has a Partnership Act in place that regulates the set up and management of partnerships. Therefore, you will need to check what the relevant law is where you intend to register your partnership.

Subject to the nature of your business, the steps you will generally need to undertake include:

  • deciding how you will enter into partnership (i.e. as individuals, or through company or trust structures);
  • entering into a partnership agreement;
  • registering an Australian Business Number (ABN) and a business name;
  • registering for tax;
  • setting up a bank account for the business; and
  • applying for relevant licences.

1. Who is the Partnership Between?

A partnership can be between two or more: 

  • individuals; or 
  • entities, such as companies or trusts. 

You should consider obtaining tax advice on which of these structures may be most beneficial to you, in terms of minimising your tax obligations.

It is also worth considering that operating a corporate structure (i.e. a company or a corporate trustee of a trust) will: 

  • be more expensive to set up initially; and 
  • have ongoing regulatory requirements, whereas operating as an individual does not. 

Once you have decided on the entities or individuals who will form the partnership, you should enter into a partnership agreement. This will clearly set out how you will manage the partnership. 

2. Form a Partnership Agreement

partnership agreement confirms that the partners intend to carry on business in partnership according to the terms in the agreement. The agreement should be in writing so that it is clear how the partners have agreed to operate the business together.

The agreement should set out the respective rights and obligations of each of the partners, including how they will conduct business and share the profits and losses of the business. It will need to: 

  • include the names and addresses of the partners; and 
  • note the capital contributions each has made to establish the business.

The agreement should also include terms setting out: 

  • how the partners are going to receive the profits of the business;
  • who has the authority to make decisions on behalf of the business; and
  • how the partnership signs formal documents. 

It should also include a dispute resolution process and procedures to follow in the event of the: 

  • death or retirement of a partner; or
  • 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 when establishing the partnership.

3. Register an ABN and a Business Name

In Australia, it is a legal requirement to register for an Australian Business Number (ABN) if you plan on carrying on a business. You can easily register for an ABN online at the Australian Business Register or the Business Registration Service. As at the date of writing, there is no fee to register an ABN.

If you and your partners wish to conduct business in a name other than the names of each of the partners (e.g. B Smith & J Smith), you will also need to register a business name with the Australian Securities and Investment Commission (ASIC). You will need an ABN at the time of registration, or be in the process of acquiring one.

4. Consider Your Taxation Registrations

As a commercial entity, the partnership must apply for all appropriate tax registrations. It will need a tax file number and may need to register for goods and services tax (GST). 

If the business of the partnership has a turnover of $75,000 or more, then it must register for GST. It may be that you wait to register for GST until your business meets this threshold. 

If you plan to have employees working for the partnership, you will also need to register for pay as you go withholding. This is an amount that you will retain from the pay you owe your employees that you are required to forward to the Australian Taxation Office.

The Business Registration Service allows you to register for each of these tax registrations at once, so it is a helpful resource to use when setting up a partnership.

5. Bank Account in the Name of the Business

Although this is essential for every business, you will need to: 

  • set up a bank account for the partnership to keep track of all income and expenditure; and 
  • facilitate the keeping of accurate financial records. 

You should typically ensure that each partner has authorisation to access the bank account. However, you may have particular requirements in your partnership agreement for when a partner needs approval or joint authorisation to make certain transactions.

6. Licenses to Operate the Business

Depending on the nature of your business, you may need to apply for a licence or permit before you can operate. The Australian Business Licence and Information Service, which is available online, can point you in the right direction to find out exactly what licences you might need to apply for. 

Key Takeaways

If you are planning on registering your business under a partnership structure, there are various factors that you will need to consider. The key steps you will need to take include:

  • understanding who will be part of the partnership and how this will affect your tax obligations;
  • forming a partnership agreement that details the relationship, duties of each partner and a dispute resolution process;
  • registering your business for an ABN and business name;
  • establishing a bank account in the name of the business to track financial transactions; and
  • securing a licence to operate your specific business.

If you have any questions about setting up your partnership or need assistance with drafting your partnership documents, contact LegalVision’s business lawyers on 1300 544 755 or fill out the form on this page.

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