A partnership is a specific type of business structure which is used for a variety of reasons, but it essentially allows cooperation amongst people who want to be in a business where they may play complementary functions in the business or share resources as well as profits.   It has certain advantages in the that the formal requirements for partnership are not as ownerous as a company in some respects.  There is no annual registration fee, there are not external requirements on directors like the requirement to act in relation to shareholders in a particular way, there are not obligations in relation to taxation as a director or to the Australian Securities and Investments Commission.  The problem with all of this is that as a partner in a business you are jointly liable with the other partners in the business at a personal level which as a director you are not because of the corporate veil, otherwise known as limited liability.  This means that it is almost always necessary to have a comprehensive partnership agreement with the other members of a partnership which you are involved in so that you can protect your interests in case something happens which adversely affects the business and suddenly you discover that your business partners are not quite the loyal, trustworthy and respectable people you once believed them to be.

For some people, the partnership structure can also be beneficial because it allows to only pay tax on their personal income rather than both the personal income derived from the business and at the company tax rate which is in some senses a form of double taxation in Australia.  Although in relation to shareholdings, often the dividend imputation credit can be claimed in relation to taxation, this is only a minor benefit in comparison to the need to have to pay income tax.  If you have any questions regarding partnership formation, please do not hesitate to contact us using any of the contact forms available on this website.