Business & Commercial
Newcastle's leading experts in business and commercial law
A partnership is a common business structure employed by modern business men and women where two or more people work together and share the profits and losses of the business. If you are involved in a partnership it is critical that you have a partnership agreement to clearly define the relationship between the partners, and the responsibilities and obligations attached. An agreement is especially important in the context of partnerships as partners can be held personally liable for the actions of other partners or of the partnership as a whole.
The team at Burgess Thomson are experienced in preparing partnership agreements and can assist you to understand the important terms that should be included in your circumstances. Having a clear understanding and documenting the agreement will save you headaches down the line if disagreements occur between the partners about the responsibilities or obligations attached to their position. Some important terms commonly included in partnership agreements include the amount each partner is contributing, how profits and losses will be allocated, the obligations and responsibilities of the parties, and how disputes will be resolved if they occur.
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What if I want to leave the partnership after an agreement is in place?
Generally, this will be covered by a partnership agreement in the form of steps required to relinquish your position. If the partnership is to be completely dissolved, this too should be covered by the agreement. An effective partnership agreement will also protect you against personal claims from other partners in the event of a dispute. When deciding to relinquish your position it is important you notify all relevant parties and assist the other partners in taking on the responsibilities and obligations previously allocated to you.
What if we want to change our business structure to a company?
This process is not as complicated as you might think, and with legal assistance can be a smooth transition. The process involves two basic steps – dissolve the partnership; and establish the company. The process for dissolving the partnership should be covered by your partnership agreement. After this is completed by the relevant parties, partnerships will generally have to cancel their ABN and deal with existing arrangements involving the partnerships, for example if they will be transferred to the company or terminated. To form a new company you will need to complete the relevant forms and lodge them with ASIC to be registered, accompanied by the associated fees. It is also important to be aware of the tax obligations of this decision.
How is a partnership different to a joint venture?
A joint venture involves individuals working together towards a shared goal whilst maintaining their separate businesses. Common joint ventures include property developments or franchising agreements. Joint ventures also usually terminate once the goal of the venture is reached, say the property has been developed and sold. Conversely, partnerships are ongoing relationships where each partner is jointly responsible for the activities of the partnership. A key difference is that a partner will be liable for other partners if they cannot pay their debts. This does not occur is joint ventures, each party is liable for their own debts.