Partnership is one of the oldest and simplest of business structures. It can be traced back as least as far as Ancient Rome.
Partnership is beautifully simple. You and your partner agree to share all the risks and profits of a business and be answerable for each other in the business and for all its debts or claims. Like marriage, partnership is “not by any to be entered into unadvisedly or lightly”. You must have complete and absolute trust in your partner.
For this reason, many of the most durable partnerships are in fact between husbands and wives and within families. If you enter into partnership with someone, you are liable for whatever he or she does in the course of the business, including even potentially any criminal offences he or she may commit.
The main advantages and disadvantages or partnership are as follows:
- tax losses are allocated between partners and are used in the same year
- there is a flowthrough of deductions and CGT discount
- subject to the partners’ consent, funds can be taken out of, or put into the business, with no regulatory restrictions or tax consequences
- but you have no limited liability, you are liable to your last cent for the partnership’s obligations
- partners may require meetings and resolutions for business decisions
- no partner can be forced to plough back his share of income into the business
- but individual partners are exposed to tax rate at top marginal rate plus Medicare levy and surcharge plus superannuation surcharge