What is a business partnership?

Two business people walking

A partnership is a legal relationship of two or more (up to 20) people who together operate a business.

A partnership is easy and cheap to set up and has relatively low compliance and accounting costs.

The partnership requires a separate Tax File Number and lodges its own tax return. The partners can apply for an Australian Business Number but this isn’t compulsory.

A partnership doesn’t pay tax on its income – each partner pays tax on the share of the net business income they receive. This income splitting is an advantage when the business partners are also domestic partners.

It isn’t a separate entity – all of the business partners are personally liable for the debts of the business.

A partnership must be registered for goods and services tax if the annual income turnover is $75,000 or more.

A formal written partnership agreement is often used, but isn’t essential.

The partners have shared control and management of the business which spreads the responsibility but this can also lead to management disputes about the operations and direction of the business.

Every time a partner leaves the business, the partnership must be dissolved and a new one created by executing a new partnership agreement.

Partnerships are regulated by the Partnership Act 1892.

A partnership has its own advantages and disadvantages compared to other business structures, so it’s very important to get legal advice early on about which structure will best suit your business.