Partnerships in Victoria
A partnership is a group of between 2 and 20 people who go into business together to make a profit. In Victoria, there are 3 types: general, limited and incorporated limited. They are governed by the Partnership Act 1958.
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.
Section 23 of the Act provides rules to govern the rights and duties of partners in this arrangement:
- 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 from the partnership 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 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 must not take part in management of the business but can perform some business functions such as advising and consulting other partners on the state and prospects of the business.
Limited partnerships must be registered with Consumer Affairs Victoria. The registration application must include details such as the amount of capital or the value of property provided to the partnership by the limited partner.
This is 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 have the words “An Incorporated Limited Partnership”, or “L.P.” or “LP” as an abbreviation, at the end of its name. It must be registered with Consumer Affairs Victoria and the registration certificate must be displayed at all times in a conspicuous position at the registered office of the business.
This type of arrangement 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.