A partnership is a business structure consisting of a group of people conducting business together with the intention of making a profit. There are several different types of partnerships. This page deals with partnerships in the ACT.
In the ACT, the laws that regulate partnerships are contained in the Partnership Act 1963. Partnerships in the ACT are regulated by Fair Trading, which is required to keep a register of all incorporated limited partnerships in the ACT.
Types of partnerships
In Australia, there are three different kinds of partnerships. These are:
- normal or general partnerships
- limited partnerships, where there is a limited number of partners
- incorporated limited partnerships, where the partnership itself is a separate corporation.
In the ACT, only normal/general partnership and incorporated limited partnerships can be established.
Normal or general partnerships
Normal/general partnerships are the simplest kind of partnership to make because they do not need to be registered with Fair Trading. Furthermore, the partners do not need to have a written partnership agreement between them.
A normal/general partnership structure is generally used in all partnership business arrangements that do not need venture capital (i.e. capital in support of a business that has high growth potential but possibly high start-up costs). Where venture capital is required, an incorporated limited partnership is formed.
Does a normal/general partnership exist?
The Partnership Act 1963 specifies the factors that are relevant in determining whether a normal/general partnership exists. These include:
- whether a person receives a share of the profits of a business
- whether property is held jointly
- whether money has been loaned between two persons where one carries on a business
However, none of these factors on its own proves that a partnership exists.
Dissolution of a normal/general partnership
In the ACT, a normal/general partnership can be dissolved in a number of ways, including:
- the death of a partner
- the bankruptcy of a partner
- an order by the Supreme Court of the ACT that the partnership be dissolved.
Liability in a normal/general partnership
In a normal/general partnership, all of the partners are jointly liable for the debts and obligations of the partnership. Partners also have joint liability for any wrongs done by the partnership – for example, losses or injuries caused to a person who is not a partner.
Incorporated limited partnerships
An incorporated limited partnership is established as a corporation, meaning it is a separate legal entity from the partners. It allows limited partners but unlike a limited partnership, the partners in an incorporated limited partnership have no liability for the debts and other obligations of the partnership.
Incorporated limited partnerships are used primarily for venture capital projects. These are generally projects that have high growth potential but that need significant capital to start up. Incorporated limited partnerships allow venture capital investors to invest in projects without taking on personal liability for financial risk.
Incorporated partnerships generally require more work to establish than a normal/ general partnership because:
- they need to be registered with Fair Trading
- they must at all times have a written partnership agreement between all of the partners
- they need to be wound up in accordance with the Partnership Act 1963.
Incorporated limited partnerships can have a maximum of 20 general partners.
Registration of incorporated limited partnerships
Incorporated limited partnerships must be registered with the Commissioner of Fair Trading. An application for registration must be signed by each partner or proposed partner and must include the firm name, the full address of the proposed office or principal office and the full names and addresses of each partner or proposed partner.
If any of the registered information changes, a statement setting out the changes must be filed within seven days of the change. A penalty of 10 penalty units applies for a failure to comply with this requirement.
In the ACT, most partnerships do not pay tax as a partnership entity. Instead, each of the partners in the partnership pays income tax on their share of the partnership’s income on their own personal income tax returns. However, not all partnerships are taxed in this way as some incorporated limited partnerships are taxed as companies.
If you require legal advice or representation in any legal matter, please contact Go To Court Lawyers.