Starting A Small Business In Australia Partnerships

When two or more people are considering starting a business in Australia, one way to go about structuring that business is through a partnership. All the partners in a partnership legally own the business although the partnership is not a separate legal entity. What this means is that all the partners are liable for the debts of the partnership.

Is a Partnership Right for You?

How will you know if a partnership is the right business structure for you? Basically, you can answer this question by considering your potential partners. Are they people you trust and do all of you have the same business objectives? Responding to this query objectively gives you a great starting point in deciding whether or not you want to go into partnership with your new business associates. Personal relationships may not translate as well into a business relationship. Hence it’s advisable if you spend a considerable amount of time discussing every aspect of your proposed business with your prospective partners before you commence the legal steps to making your partnership a reality.

Benefits of a Partnership

With a partnership, you’ll have access to a wider pool of professional expertise and skills than if you did business as a sole trader. Your potential partners will each be able to contribute start up capital to the partnership. You’ll have a solid source of funds for your business and may not have to borrow from the bank. It’s a relatively inexpensive way to establish a business in comparison to a trust or incorporating a company. Different partners contribute different skill sets to the partnership and you’ll be able to segregate your business operation into distinct departments in accordance with specialist roles. Your partners can decide how to divide the profits and losses of your business entity.

Drawbacks of a Partnership

Although partners are not employees within the partnership, you’ll be able to engage the services of consultants and independent contractors to enhance your business processes and provide value added services to your clients. Unfortunately, all partners are jointly and severally liable for the debts of the partnership. As far as legal actions are concerned, the partners have unlimited liability. You won’t be able to take on a new partner without the consent of all the other partners and you may find it difficult to do business if there are disagreements among the partners. If one partner makes a contract with a third party without the knowledge of the other partners, all members of the partnership are bound by the terms of the contract. This means that you’ll be saddled with the obligations and debts related to the contract even though none of you had signed the contract. You can be sued in a court of law for all the partnership debts if your partners decided to jump ship and leave you high and dry.

Partnership Agreement

One of the best ways to codify the obligations of individual partners within a partnership is through a partnership agreement. This legal document stipulates the critical features of the partnership and the rights and responsibilities of each partner. The agreement serves as a binding legal document on all the partners and is especially useful in the event of business disputes. The partnership agreement is also advisable when the shares of the partners in the partnership profits is not equal. Without a partnership agreement, the partnership comes under the purview of the Partnership Act.

Setting up a Partnership

In Australia, setting up a partnership requires you to first decide on whether you want to run the business under the names of all the partners or use a trade name. Once you’ve decided on your business name, you’ll have to register it in the state where you do your business. Should you decide to trade in several Australian states, then you must register in each state individually. Registering a business name is required even if you use your name and those of your partners in your partnership dealings.

Once you’ve registered your business name, you then obtain an Australian Business Number, or ABN, for the partnership as a whole regardless of whether you’re trading under a business name or using all the partners’ names. You must apply for the ABN through the Australian Taxation Office or ATO. Be sure to link your business name to your partnership ABN with the assistance of the ATO.

Your next step is to obtain a Tax File Number or TFN for your partnership. You can’t use your personal TFN for this purpose. That’s because your personal TFN is used when you lodge your personal income tax return. The partnership TFN is used to submit a tax return of the partnership. This would require all the partners to lodge individual tax returns as well as one for the partnership as a whole.

The partnership is not considered a tax paying entity. This role is taken over by the individual partners. Your partnership will pay tax as a result of the division of profits or losses to the partners who declare this on their individual tax returns. This also means that your partnership is not liable to pay PAYG instalments. If you have a partnership agreement, this will identify how the profits and any losses of the partnership will be split between the partners. Usually it will be in accordance with the ratio of the capital the partners had contributed at the start of the alliance. In the absence of a partnership agreement, such profits and losses will be divided equally among the partners.

Assistance to Set Up Your Partnership

If setting up a partnership seems like an obstacle race to you, then you need competent assistance to start your partnership. Here’s where Starting a Business Now can provide you with comprehensive assistance to get your business partnership off the ground cost effectively. Their business start up packages encompass all the vital ingredients to starting a business as a partnership in Australia. You’ll have access to expert advice and guidance that takes the pressure off your shoulders immediately.

Article Source: http://www.moneyarticlelibrary.com

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