Partnership Agreements in South Australia
Partnership agreements are business structures used by a group of people who want to carry on a business together with a view to sharing the profits. In South Australia, partnerships are governed by the Partnerships Act 1891. This page deals with partnerships in South Australia.
Types of partnerships
South Australia allows the creation of three different kinds of partnership:
- normal or general partnerships
- limited partnerships that consist of general partners and limited partners
- incorporated limited partnerships, where the partnership is established as a separate body corporate.
Normal or general partnerships
Normal or general partnerships are commonly used in small ‘mum and dad’ type business operations because they are the simplest to create.
A normal or general partnership does not have to be registered with the South Australian government and the partners do not need to enter into a written partnership agreement to govern the relationship between them.
Each partner is liable for all of the debts of the partnership from the time at which they became a partner. Each partner has the power to bind the partnership as one of its agents (for example, by taking out a loan for the partnership).
The Partnership Act contains specific rules for determining whether a normal or general partnership exists. For example, a person who shares in the profits of a business with another person prima facie carries on that business with them in a partnership. Other factors that may suggest there is a partnership include whether the people involved hold property together and whether they share gross returns.
A limited partnership is another type of partnership that does not require the partners to enter into a written partnership agreement. However, a limited partnership does need to be registered in order to be created.
Limited partnerships are made up of general partners and limited partners.
General partners have control over the management of the partnership’s business, and they are also liable for all the debts of the partnership from the time they become a partner.
Limited partners cannot generally participate in running the management of the partnership’s business. Their liability for the debts of the partnership is limited to a certain amount that is specified in the register of the limited partnership.
A limited partnership must have at least one limited partner and one general partner. It cannot have more than 20 general partners.
Incorporated limited partnerships
Incorporated limited partnerships are a type of partnership that was created to encourage investment in venture capital projects (i.e. projects with high growth potential).
An incorporated limited partnership is established as a body corporate that exists separately from its partners. Similar to a limited partnership, it must be registered in order to be created. However, it must also have a written partnership agreement in place at all times.
Incorporated limited partnerships consist of both general partners and limited partners. Limited partners have the same rights to manage the business of the partnership as they do in the case of a limited partnership. However, unlike in a limited partnership, each limited partner in an incorporated limited partnership has no liability for the debts of the partnership. It is this feature that makes an incorporated limited partnership model so attractive for venture capital projects as this structure allows a person to raise a lot of finance relatively easily.
Incorporated limited partnerships are a type of body corporate and as such generally need to be wound up in order for the partnership to end. There are specific rules for how an incorporated limited partnership should be wound up set out in the Partnership Regulations 2006.
Limited partnerships and normal partnerships can be dissolved due to the death or insolvency of a partner, or if it becomes unlawful for the business of the partnership to be carried on.
The Supreme Court of South Australia can also order a partnership to be dissolved in certain circumstances.
Taxation of partnerships
Partnerships usually do not pay income tax. Instead, each partner pays income tax on their share of the partnership’s income.
Some corporate limited partnerships are taxed in the same way as companies, but in some circumstances, they may also be taxed in the same way as other partnerships.
If you require legal advice or representation in any legal matter, please contact Go To Court Lawyers.