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A small business partnership requires compatibility, trust and mutual respect to be successful. In a partnership, all partners should have similar values that align with the partnership’s overall goals and intentions. If you think a partnership is the right structure for your business, you might be wondering how to get started. 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?

The first thing to consider when setting up a small business partnership is the nature of a partnership. Broadly, a partnership is a business structure that you can form with two or more people who agree to going into business together. There are different types of partnerships, like:

  • general partnerships;
  • limited partnerships; and
  • limited liability partnerships.

Notably, the type of partnership structure you choose will determine the level of liability of each partner.

It is also important to note that each state and territory has its own partnership legislation in place that regulates partnerships in Australia. It is important that you consider this legislation when establishing a partnership. 

Additionally, there are six key steps to start your partnership. These include:

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

1. Consider the Scope of the Partnership

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. This agreement should be in writing and should outline how the partners intend to manage and operate the business. 

Likewise, 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. 

A detailed partnership agreement can help save a lot of disagreements and stress later down the line.

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 Your Partnership

The next step you will need to undertake to set up your small business partnership is registering as a partnership.

First, you will need to register for an Australian Business Number (ABN) with the Australian Business Register. Secondly, you will need to register a business name with the Australian Securities and Investment Commission (ASIC). However, if you intend to trade using the partners’ names (e.g. B Smith & J Smith), this will not be necessary.

If you have a silent partner, you will also need to complete a limited partnership formation registration.

4. Consider Your Taxation Registrations

Next, you will need to sign up your partnership with the appropriate tax registrations. This might include:

  • a tax file number;
  • GST registration if your partnership has an annual turnover of more than $75,000; and
  • pay as you go (PAYG) withholding if you intend to have employees.

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.

You can register for all the relevant tax and licencing registrations with the Business Registration Service.

5. Open a Partnership Bank Account

Finally, you will need to ensure you open a bank account for your partnership. This is important to keep track of business income and expenditure and is also essential for keeping accurate financial records. This will be critical when lodging taxation documents.

Depending on your partnership agreement, access to the partnership bank account might be limited. For example, you might decide that one partner has authorisation to access the bank account, while others have different responsibilities and accessibilities.

6. Obtain Relevant Licenses

Finally, you will need to ensure you have the correct licences to operate your business. The licences and registrations needed will vary greatly depending on the industry your business operates in. The Australian Business Licence and Information Service has a questionnaire to help you find the licences, regulations and council approvals you need.

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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:

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

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.

Frequently Asked Questions

What is a partnership?

A partnership is one type of business structure that is formed when anywhere from two or 20 people decide to go into business together. There are different types of partnerships, with the partnership you choose indicating the level of liability each partner has. In Australia, each state and territory has its own partnership legislation in place that regulates partnerships.

How do I set up a small business partnership?

To set up a small business partnership, you should first consider the pros and cons of this business structure and decide if a partnership is suitable for your business. Once you decide to set up a partnership, you will need to form a partnership agreement. A partnership agreement should outline how the partners intend to manage and operate the business. Then, you will need to register as a partnership. This will include tax registration and obtaining the necessary licences and registrations. You will also need a separate bank account for your partnership.

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