Similar to New South Wales, there are three different kinds of partnerships in Victoria. These are general partnerships, limited partnerships and incorporated limited partnerships. The rules dealing with how each of these partnerships in Victoria is created and how they are regulated are contained in the Partnership Act 1958. Limited partnerships and incorporated limited partnerships must be registered with Consumer Affairs Victoria. Consumer Affairs Victoria also provides some useful guidance explaining the operation of these kinds of partnerships.
General partnerships in Victoria are the most common and simplest form of partnership to create. They are often used for simple business structures (for example, businesses set up by husbands and wives and small businesses set up between friends). General partnerships are not required to be registered with Consumer Affairs Victoria and do not need to be put down in writing. Instead, there are rules for determining whether a partnership exists; for example, if the partners share in the profits of a business, that is prima facie evidence that the business is carried on as a partnership. Other relevant factors include, for example, whether property is held jointly; however, no single factor is determinative. All the partners in a general partnerships in Victoria share liability for all the debts of the partnership, but only to the extent that those debts were incurred while they are a partner. Each partner acts as an agent for the partnership, and can act to bind each of the other partners; for example, by entering into a loan for the partnership. Partners can generally retire from the partnership simply by giving notice to the other partners, unless the partnership was created to last for only a fixed term.
Limited partnerships are a kind of partnership that consist of both general partners and limited partners. They can have any number of limited partners, but generally speaking can only have up to 20 general partners. The liability of a limited partner to pay for the partnerships’ debts is limited to a particular amount specified in the register of limited partnerships kept by Consumer Affairs Victoria. However, they cannot take part in the management of the partnerships’ business, and cannot bind the other partners. In this way, they act as “passive inventors”. On the other hand, general partners have control over the partnerships’ business, but are liable for all the debts of the partnership. In this way, limited partnerships are much more flexible than general partnerships because each partners’ participation can be moderated to suit that partner. Limited partnerships are created when they are registered with Consumer Affairs Victoria. There is a specific form that you have to lodge with Consumer Affairs Victoria to register a limited partnership.
Incorporated limited partnerships are a special kind of limited partnership that were created to provide an efficient business structure for venture capital projects (i.e. risky projects that are expected to be high growth). Similar to limited partnerships generally, incorporated limited partnerships are established when they are registered with Consumer Affairs Victoria. The appropriate form must be filed with Consumer Affairs Victoria to become a registered incorporated limited partnership. They must have at least one limited partner and one general partner, but no more than 20 general partners. Furthermore, unlike the other kinds of partnerships, there must be a written partnership agreement entered into between the partners setting out the rules for how the partnership will be managed. Limited partners also have no liability for the debts of the partnership; this approach has been taken so that investors can invest in another person’s risky business project without taking on risk themselves.
For income tax purposes, general partnerships are not taxed as a legal entity. Instead, each of the partners includes a share of the partnerships’ income in their own income tax return. However, the partnership will still lodge a tax return to prove the partnerships’ income. Most limited partnerships are entitled to be taxed as separate legal entities. Interestingly, limited partnerships that relate to venture capital projects may still be taxed in the same way as general partnerships.
Partnerships that are entered into for a fixed term or for a particular project end when that fixed term or project ends. The death or bankruptcy of a partner will also cause a partnership to end. However, in the case of a limited partnership, the death or bankruptcy of a limited partner will not cause it to end. A limited partnerships in Victoria will however automatically cease when there are no limited partners left in the partnership. The partners can also wind up a limited partnership. Incorporated limited partnerships can be wound up in accordance with the terms of its partnership agreement, or by a special resolution of the limited partners (subject to the terms of the partnership agreement).