Partnerships in NSW
A partnership is a group of between 2 and 20 people who go into business together to make a profit. In New South Wales, there are 3 types of partnership: normal, limited and incorporated limited. They are governed by the Partnership Act 1892.
This partnership is one in which each partner is equally responsible for managing the business and has unlimited liability for the debts and obligations the business may incur. It is a suitable arrangement when a business needs a simpler model than a company structure, and does not need to be registered with NSW Fair Trading.
Section 24 of the Act provides rules to govern the rights and duties of partners in a general partnership:
- All partners must share equally in the profits and losses of the business;
- The business must indemnify every partner for payments made and personal liabilities incurred in the ordinary and proper conduct of the business, or to protect it;
- A partner who pays more than their share of capital can claim interest of 7%;
- A partner cannot collect interest on their capital before profits are calculated.
- Every partner can take part in managing the business;
- No partner is entitled to be paid for acting in the business;
- No partner can be introduced as a partner without the consent of all existing partners;
- Any dispute about ordinary matters in the business can be decided by a majority of partners but the nature of the business cannot be changed without the consent of all existing partners.
- Partnership books are to be kept at the place of business and be available to all partners at all times for inspection and copying.
Other rules provided by the Act include:
- A partner cannot be expelled by majority unless this is provided for in the partnership agreement.
- Every partner must disclose any private profit they made from a partnership transaction or the use of partnership name, property or business connection.
- A partner must not run a business of the same nature that competes with the partnership business, and if they do, they must hand over to the partnership all profits made.
This arrangement is one in which one or more partners has limited liability for the debts and obligations of the business while the other partners have unlimited liability. The limited partner’s liability is proportionate to their investment in the business. There is no cap on the number of limited partners in the business.
A limited partner is essentially a passive investor and must not take part in management of the business. However, they can perform some business functions such as advising and consulting other partners on the state and prospects of the business. A limited partnership may be a suitable arrangement for industrial developments, agricultural schemes, mining projects or arts ventures. It must be registered with NSW Fair Trading.
This is a special type of limited partnership that has the legal capacity and powers of an individual as well as the powers of a business. This includes the power to:
- enter into contracts;
- create, confer, vary or cancel interests in the partnership;
- acquire, hold and dispose of property;
- appoint agents and act as an agent;
- for and take part in forming companies or incorporated limited partnerships;
- take part in partnerships, trusts, unincorporated joint ventures and other arrangements to share profits;
- take other actions authorised by the partnership agreement.
An incorporated limited partnership must have at least 1 general partner and at least 1 limited partner. There is no cap on the number of limited partners. There must be a written partnership agreement in force at all times between partners. The agreement also serves as a contract between the partnership and each partner.
The partnership must be registered with NSW Fair Trading and the registration certificate must be displayed at all times in the entity’s registered office.
This type of partnership is mainly used by businesses involved in high-risk venture capital projects. Such projects usually have the potential for rapid growth and high rates of return.
To operate under a name other than the partners’ personal names, the business name must be registered. The partnership has its own Tax File Number and often its own Australian Business Number (ABN), which it will use to lodge its own tax return. Partnership profits are divided between partners as per the partnership agreement, then each partner lists their share of profit or loss on their personal income tax assessment. If annual business turnover exceeds $75,000, the partnership is required to collect Goods and Services Tax (GST). If the business employs people, it is required to pay payroll tax and superannuation for employees.
For advice or representation in any legal matter, please contact Armstrong Legal.