PARTNERSHIP AGREEMENT
'When two or more people carry on a business as partners or receive income jointly.'
Business partnerships can be an enjoyable, profitable and enduring form of a business relationship.
Partnerships free up business owners by allowing them to share management duties and capitalise on the specific skills of the partners. Many people have found that when the right synergy exists between business partners, the world can be your oyster.
If you are thinking more along the lines of a single, short-term project, then a Joint Venture agreement maybe more suitable. Particularly if the aim of your project is to share the output of the arrangement, like a product or intellectual property, rather than joint or collective profits.
A partnership is not a separate legal entity like a Proprietary Limited (Pty Ltd) Company, and doesn’t pay income tax on the income earned by the partnership. Instead, each partner pays tax on their share of net partnership income.
Under Australian tax law, partnerships need to have a tax file number (TFN) and even though they do not pay tax, they are still required to lodge an annual partnership income tax return.
If the partnership is carrying on an enterprise in Australia, it is also required to have an Australian Business Number (ABN)
There are three types of Business partnerships
General Partnership. Partners divide responsibility for management and liability, as well as the shares of profit or loss according to their internal agreement. Equal shares are assumed unless there is a written agreement that states differently.
Limited Partnership. “Limited” means that most of the partners have limited liability (to the extent of their investment) as well as limited input regarding management decisions, which encourages investors for short-term projects, or for investing in capital assets. Forming a limited partnership is more complex and formal than that of a general partnership.
Joint Ventures. JV’s are usually undertaken to pursue a single project and are intended to last for a pre defined period. The relationship between the participants in a joint venture is usually governed by a joint venture agreement.
Advantages of Partnerships
There are many advantages to sharing a business with partners, including:- A partnership can be easy and inexpensive to set up.
- Where the partners are within the same family, certain tax advantages exist for example husband and wife.
- Your share of the partnership losses are deductible from your personal income and, if your income is small, the tax you pay on your share of partnership income will be low.
- The partnership benefits from a broader range of knowledge, experience and skills.
- There is access to more capital because your resources are combined.
- Unlike a sole trader it is easier to take time off.
- Fairly easy to dissolve and recover your share of investment
- One partner can sustain the business during another's illness or absence due to other commitments
- Partners own the profits
- Management tasks can be shared reducing the burden on individual partners
Disadvantages
A partnership structure is not without its problems. When relationships are incompatible, problems can surface. These may include:
- disputes over profit sharing, administration and business development
- personality clashes
- each partner is personally responsibility for business debts and liabilities incurred by the other partners
- one partner may dissolve the partnership and effectively ruin the business
- in financial difficulties, the individual partners' assets are at risk to settle partnership debts
- there may be taxation disadvantages
- problems with deciding who has authority
- problems when one person leaves or another wishes to join
Fortunately many of these issues can be addressed in a solid Partnership Agreement.
This Partnership Agreement has been formatted for your convenience using Microsoft Word and it is available for immediate download. You can use this template time after time, simply insert the correct information in the appropriate fields and tab to the next. Now print your legal and binding Partnership Agreement.
Partnership Agreement Download |
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This Partnership Agreement Template defines the rights, roles and responsibilities of each partner and clearly spells out specific conditions that apply to your partnership. This means it protects the interests of those involved by putting in writing the following considerations:
The Partnership Agreement includes the following provisions -
- Description of the Business
- The role and authority of each partner
- Amount of equity invested by each partner
- Entitlement to and share of profits
- Term of the partnership
- The principle place of business
- Banking arrangements
- Accounting/Valuation Principles
- Retirement/Death Arrangements
- Provisions for changes or dissolving the partnership.
- The distribution of assets on dissolution
- The resolution of disputes
- Withdrawal of capital
- Loans
- Acts requiring majority consent
- Sale of partnership interest
- Conflicts of interest
- Confidentiality
- Governing Law
Partnership Agreement Download Click Here |
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For a complete Business Partnership Agreement Kit that includes every contract and document you may need to form a partnership, please see the;