A partnership is a business structure carried on by a group of people together with the intention of making a profit. Each of the States in Australia allow you to make three different kinds of partnerships: these are normal or general partnerships, partnerships with limited partners known as limited partnerships and incorporated limited partnerships, where the partnership itself is a separate corporation.
Unlike the states, the rules relating to partnerships in the ACT are more limited in this regard because you can only establish a normal or general partnership or an incorporated limited partnership. In the ACT, the partnership rules are contained in the Partnership Act 1963. They are mainly regulated by the OSR Fair Trading, which keeps a register of incorporated limited partnerships.
Normal or general partnerships in the ACT are the simplest kind of partnership to make because they do not need to be registered with OSR Fair Trading, and the partners of the partnership do not need to have a written partnership agreement between them. Because of this, the Partnership Act 1963 specifies the factors that are relevant in determining whether a partnership exists. For example, if a person receives a share of the profits of a business, that is evidence that they are a partner in that business.
There are other factors to be taken into account: for example, whether property is held jointly, or money has been loaned between two persons where one carries on a business are both relevant to the question of whether a partnership exists. However, neither proves on its own that there is a partnership in place.
Generally speaking, the normal or general partnership structure is 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). In these cases, incorporated limited partnerships are used.
Normal or general partnerships in the ACT can be dissolved in a variety of ways. For example, if one of the partners dies or becomes bankrupt, or if the Supreme Court of the ACT orders that the partnership be dissolved. This can occur on the application of a partner if another of the partners is determined by the Court to have a mental illness.
In a normal or general partnership, all of the partners are jointly liable for the debts and obligations of the partnership, and also have joint liability for any wrongs of the partnership (for example, losses or injuries caused to a person who is not a partner in the firm). In this regard, each of the partners can participate in the management of the partnership. They also each have the authority to bind the partnership as agents (for example, by entering into a loan on behalf of the partnership).
In limited partnerships (which cannot be made in the ACT), a partnership can have both general partners (who have the same liability as partners in a normal or general partnership) and limited partners, whose liability for the debts and obligations of the partnership are limited to a specified amount. Establishing a partnership in the ACT is somewhat inflexible as it does not allow a person to take advantage of this kind of structure.
As mentioned above, incorporated limited partnerships in the ACT are used primarily for venture capital projects (i.e. projects that have high growth potential but may need significant capital to start up). The partnership itself is established as a corporation, meaning it is a separate legal entity from the partners in the partnership.
They generally require more work to establish than a normal or general partnership because they need to be registered with OSR Fair Trading. Furthermore, there must at all times be a written partnership agreement between all of the partners.
Incorporated limited partnerships in the ACT also allow limited partners. However, unlike limited partnerships, each of the partners in an incorporated limited partnership has no liability for the debts and other obligations of the partnership. This rule exists so venture capital investors can invest in projects without taking on liability risk. However, they cannot participate in the management of the business of the partnership.
Finally, incorporated limited partnerships can only have up to 20 general partners. In addition, because incorporated limited partnerships are separate legal entities, they need to be wound up in accordance with the Partnership Act 1963 to be dissolved.
Most partnerships in the ACT do not pay tax as a partnership entity. Instead, each of the partners in the partnership pays income tax on their share of the partnerships’ income on their own personal income tax returns. Not all partnerships are taxed in this way as some incorporated limited partnerships may be taxed in the same way as companies.