Partnerships in Victoria
A partnership exists where two or more persons agree to do business together and share the profits. There are three different kinds of partnerships that can be formed in Victoria. These are general partnerships, limited partnerships and incorporated limited partnerships. This page deals with partnerships in Victoria.
Forming partnerships in Victoria
The rules dealing with how partnerships are created and regulated in Victoria are contained in the Partnership Act 1958.
Limited partnerships and incorporated limited partnerships must be registered with Consumer Affairs Victoria.
General partnerships do not have to be registered and are not required to be formed under a written agreement.
General partnerships are the most common and simplest form of partnership to create. They are often used for simple business structures such as businesses set up by spouses and small businesses set up between friends.
In general partnerships, all the partners 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 retire from a partnership simply by giving notice to the other partners unless the partnership was created to last for only a fixed term.
To determine whether a general partnership exists, there are a number of factors that are considered such as whether the partners share in the profits of a business and whether property is held jointly. However, no single factor is determinative.
Limited partnerships are a kind of partnership that consists of both general partners and limited partners. It can have any number of limited partners, but only 20 general partners.
The liability of a limited partner to pay for the partnership’s debts is limited to a particular amount. This amount is specified in the register of limited partnerships kept by Consumer Affairs Victoria. Limited partners cannot take part in the management of the partnership’s business, and cannot bind the other partners. In this way, they act as “passive investors”.
General partners, by contrast, have control over the partnership’s business but are liable for all the debts of the partnership.
Limited partnerships are much more flexible than general partnerships because each partner’s participation can be moderated to suit that partner.
Limited partnerships are created when they are registered with Consumer Affairs Victoria. There is a form that must be lodged with Consumer Affairs Victoria to register a limited partnership.
Incorporated limited partnerships
Incorporated limited partnerships provide an efficient business structure for venture capital projects (i.e. risky projects that are expected to be high growth).
An incorporated limited partnership must have at least one limited partner and one general partner, but no more than 20 general partners. 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 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.
Incorporated limited partnerships are established when they are registered with Consumer Affairs Victoria. A form must be filed with Consumer Affairs Victoria to register an incorporated limited partnership in Victoria.
Taxation of partnerships
General partnerships are not taxed as a legal entity. Instead, each of the partners includes the share of the partnership’s income that they received in their personal income tax return. However, the partnership will still be required to lodge a tax return to show its income.
Most limited partnerships are entitled to be taxed as separate legal entities. However, in some cases, limited partnerships that relate to venture capital projects may be taxed in the same way as general partnerships.
Dissolution of partnerships
There are a number of ways that a partnership can be dissolved.
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 partnership in Victoria automatically ceases when there are no limited partners left in the partnership. The partners can also wind up the 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).
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