Setting up as a partnership business-The Know-Hows and Advantages
Are you & your partner thinking about taking the plunge and setting up your own business together? If so, congratulations on making a decision that’ll bring both of you closer to achieving financial freedom! But before you start counting money, there are quite a few things to figure out first - especially when it comes to deciding how best to set up your business.
It's widely known that two heads are better than one - and with a partnership, you get double the resources, knowledge, and connections! Best of all? This type of business structure offers many advantages over other types.
So if you're considering making your business dream into a reality by teaming up with someone else and forming a partnership, this blog post is here to help guide you through the know-how and show why it just might be perfect for your needs. Let's jump right in!
A partnership business structure is an attractive option for entrepreneurs looking to start their own businesses.
It offers several advantages, such as sharing the costs and workload associated with setting up a business.
It is important to clearly define each partner’s roles and responsibilities in a partnership agreement
Taking proper steps one can set up a partnership business structure easily in Australia
What is meant by partnership business structures?
A partnership business is an arrangement between one or more partners who work toward a common goal and share in the profits and losses generated from the venture.
This type of business structure, a separate legal entity, can provide advantages over other organizational structures, allowing partners to pool resources, skills, and expertise while sharing the rewards.
The roles of each partner will need to be specified in a legally enforceable agreement that regulates matters such as rights, obligations, and management responsibilities in business operations and procedures to distribute income.
Different types of partnership businesses include the following:
- Limited partnership business – A partner in a limited partnership is liable only to the extent of their investment but holds no management authority.
- General partnership business – Partners in a general partnership are equally liable for all debts and liabilities the business incurs.
- Limited liability partnership business – A limited liability partnership offers partners full protection from personal liability for business debts.
When forming a partnership, choosing the right partnership structure is critical as it will determine each partner's liability level and ways to distribute income. Depending on the industry, potential risks, and other factors, some structures may be more suitable than others.
Furthermore, it is essential to familiarize yourself with the legal requirements of your specific state or territory when setting up a partnership. This will help you understand the rules and regulations governing said partnerships and make partners equally responsible for the various aspects of running a business.
By planning and selecting a suitable structure and understanding applicable laws, you can ensure that both partners are fairly liable according to their contribution to the business.
Steps involved in setting up a partnership business structure
Once you have decided on the type of partnership that suits your business needs and gained an insight into the advantages and disadvantages of other business structures, there are several steps you must take to set up this type of business structure.
Look into the scope of the partnership
Partnerships can take many forms, whether between two individuals or multiple entities such as companies and trusts. However, you should consult a professional to maximize your tax benefits within this structure.
Additionally, there are economic implications when deciding on the right partnership form, such as when the partner pays tax; setting up corporate structures initially incurs more expenses than individual set-ups with added regulatory requirements while offering potential long-term financial gains.
Draft partnership agreement
A partnership agreement should provide a comprehensive outline of each partner's rights and obligations within the business, along with how profits and business assets will be shared between them. It must include details such as the names and addresses of all partners, capital contributions for establishing operations, and procedures to follow in the business decisions making process or when admitting new members into the firm.
Moreover, an effective plan outlining dispute resolution strategies must protect against potential conflicts arising during any period - including the death/retirement of existing partners or admission into membership by new ones.
By outlining clear expectations, goals, and boundaries in writing, a well-crafted partnership agreement helps minimize potential disagreements between the partners when conducting business while providing legal documentation of terms accepted upon entering into the partnership.
Undertake partnership registration
Once you have a plan for your small business partnership and the necessary documents, such as a Partnership Agreement in place, the next step is registering for the various associated governance requirements.
To do this, you will need to register for an Australian Business Number (ABN) with the Australian Business Register and also register a business name with the Australian Securities and Investment Commission (ASIC).
However, an Australian business number may not be required if both partners are planning to trade under the names of both partners (e.g., B Smith & J Smith). If a silent partner is involved in the partnership structure, then these parties should ensure a Limited Partnership Formation Registration has been completed and filed successfully.
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Take a look into the taxation needs such as goods and services tax
As one of the business partners, you must take the necessary steps to ensure all appropriate tax registrations have been signed up for. This includes obtaining a tax file number and, should your annual turnover be more than $75,000, registering for Goods and Services Tax (GST).
If you intend to hire staff as partnership employees, you must also secure PAYG withholding registration to make deductions from salaries for taxation purposes.
A partnership tax return must be lodged with the Australian Taxation Office (ATO) each year.
These are vital steps in setting up your business operations and must be completed correctly before commencing commercial activities.
The ATO website has all the necessary details that are required for setting up GST, PAYG payments, or managing partnership tax return legal obligations.
Start a partnership bank account
An essential step in forming a partnership is establishing a bank account for your newly founded business. Not only does having a designated business bank account help to keep track of your income and expenditure, but it is also invaluable when completing taxation documents.
It is important to consider who will be authorized to access the bank account on the agreement confirmed between the partners. This allows you, as a partnership, to stay organized, manage funds appropriately, and have accurate financial records.
Get the necessary licenses
Obtaining the necessary licenses for your business is an important step in ensuring a successful launch and fulfilling legal requirements. Although the specific licenses, regulations, and council approvals you need for business management are dependent on the industry you operate in, the Australian Business Licence and Information Service have made this process simpler with their useful questionnaire.
It is important to take time to understand each requirement to ensure efficient operation and comply with the requirements of employment legislation. Furthermore, you may be required to renew certain licenses or registrations periodically, so it is important to keep up-to-date with these requirements.
With the correct know-how, setting up a business as a partnership can be one of the best options to jumpstart your startup. Not only does it offer multiple advantages by having more than one person at the helm, but it also gives more flexibility compared to other structures.
The partnership company structure concept almost provides you with the best of both worlds - as it’s smaller in scale, helping out on the legal front versus large organizations, and yet allows for different perspectives providing synergy in decision-making processes. All in all an absolute combination!
If you decide this is right for your situation, contact Accuratee for business setup services. We’re an experienced team that would love to have you set up the best environment and hit the ground running by helping you manage everything from partnership tax return to business legal obligations– get ready to increase success! Deploy those ideas and become a binary of brilliance today!