Partnership Formation

A partnership is when two or more people start a business. Today there are more than two million businesses currently trading in Australia. If you, your friends, or business partners are converting your ideas into services or products, then careful consideration is needed to ensure that you setup the correct business structure which allows for growth and your ambitions.

We have all heard the word ‘partner’ used in various contexts. In the case or small businesses, a business partner means a person who is either:

• Committed in a business venture with you; or
• Operating a business partnership with you

The difference between these two is important. Individuals who commit to a business venture can be deemed as business partners and can choose from a variety of different structures to establish the business (eg. Company, trust or partnership structure). Whereas a partnership structure means that a legal relationship has been established between two or more people and as a result, parties will have fiduciary duties to each other.

Under a partnership structure, each party is personally liable for all the business’ debts. A partnership, unlike a company, is not a separate legal entity. This means that under Australian law, the business and you are treated as the same entity. You are also severally and jointly liable for your business partner(s) debts. Therefore, if one of your business partners is not able to pay a debt that they have incurred on behalf of the business, you could be liable instead.

A partnership structure has several advantages like low setup costs and small ongoing costs. Unlike company structures, directors’ duties won’t apply to you, but have fiduciary duties regarding your other partners.
It’s important that partnership structures are documented and therefore you need to have a partnership agreement in place. This agreement establishes the terms of your relationship and details how the partnership is to operate.

The most common reasons for setting up a partnership is:

• As multiple people are investing in the business, large amount of capital can be raised.
• When engaging a professional to establish a partnership, it can set-up in one day.
• Partners contribute a variety of skills, ideas and expertise into the business.
• Workloads can be shared among partners, allowing each partner to focus on their expertise.

If you need assistance in establishing a partnership structure, then the team at BBAS can handle this for you. Whether you are in Brisbane, or somewhere else in Australia, our highly experienced team is ready to help you. Our team is very approachable, and we would love to hear from you.