After going over endless details of starting your own business, you’re finally ready to make your dreams a reality, but you don’t want to go at it alone. Like any other form of business, a partnership business has many pros and cons.
Choosing a partner to share control of your business takes careful planning. The most common mistake that happens between business partners is the confusion over what a business partnership entails. A partnership is a relationship that is based on more than just sentimental attachment. Rather, it’s a legal agreement between two or more people who collaborate their assets, ideas and skills in order to make a business financially successful. Before choosing a business partner(s), it’s important too learn how they handle making serious financial decisions on a monthly basis. Directly ask your prospective partner(s) if they want to be a general or limited partner. Another important thing to consider is how your business partner(s) will deal with disagreements on how to use business funds or will handle stressful situations caused by shifts in the global economy. Forming a partnership also includes accounting periods and methods, the principle behind a partner’s contributions to the partnership, the time frame assets are held when contributed to the partnership, and how to value contributed services to the partnership. These considerations are crucial before starting a business partnership, since there is a risk of you becoming personally liable for all debts and liabilities incurred by the business. The worst scenario is finding out from your bank that your business account’s been wiped clean by your business partner(s)!
- Registering a Partnership
Whether you decide to use a business name (you must make sure that the name doesn’t already exist) or the names of you and your partner(s), you must register for an Australian Business Number (ABN) to entitle your partnership. You can apply for and obtain an ABN via the Australian Taxation Office (ATO) online in half an hour. The next step is to apply for a Tax File Number (TFN) for your partnership which can be done online also. This allows you to file your personal tax returns separately from your partnership tax return. Income generated from the partnership as well as with any personal income is filed on your personal tax return under the “Profits/Losses” section when you pay your taxes. You can register your business at the same time you apply for you ABN application. If you decide to register your business name later on, you will need to register via Australian Securities and Investment Commission after you obtain your ABN. Note that you and your partner(s) must come to a mutual agreement as to how to fill out both ABN and TFN applications to avoid complex issues later.
Partnership income profits or losses is considered to be equally shared by default according to the law among all business partners involved but does not have to be this way in every case. Naturally, the more people involved in a business agreement the more likely you will run into hurdles. If you’ve decided to be the sole decision maker in a partnership, you will need to think carefully of the management needs that best suit the partner(s) involved. You may even want to stipulate that any final decision made reach a unanimous vote to make sure that everyone involved is on board with you. On the other hand, if business authority is to be divided, personality differences can easily create friction, which can leave you with no other choice but to end the partnership. Although there are some exceptions, the maximum number of partners in a business partnership is 20. If a death or bankruptcy is filed by one or more individuals in a partnership, the partnership agreement will need to be changed. If a partner(s)decides to leave the partnership the total holdings of the partnership may need to be valued which is costly and time-consuming.
Once you’ve gathered basic information on how to start a business partnership in Australia, it’s time to customise your partnership agreement to allow for its future growth and expansion. Understandably, learning how to start up a partnership business involves making room for varying circumstances before everything has been legalised. It is advisable to seek the services of a law firm like Carter Capner to assist you and your business partner(s) with any terms/provisions you want to include in your business documents that all parties involved consider fair.