Partnerships can be less expensive to set up as a business structure than starting business as a sole trader, as there will likely be greater financial resources than if you operated on your own.
On the flip side however, you and your partners are responsible for any debts the partnership owes, even if you personally did not directly cause the debt.
Each partner’s private assets may still be fair game to settle serious partnership debt. This is known as “joint and several liability” – the partners are jointly liable for each other’s debts entered into in the name of the business, but if any partners default on their share, then each individual partner may be severally held liable for the whole debt as well.
Other general factors to note about partnerships include:
• the business itself doesn’t pay income tax. Instead, you and your partners will each need to pay tax on your own share of the partnership income (after deductions and allowable costs)
• the business still needs to lodge a tax return to show total income earned and deductions claimed by the business. This will show each partner’s share of net partnership income, on which each is personally liable for tax
• if the business makes a loss for the year, the partners can offset their share of the partnership loss against their other income
• a partnership does not account for capital gains and losses; if the partnership sells a CGT asset, then each partner calculates their own capital gain or loss on their share of that asset
• the partnership business is not liable to pay PAYG instalments, but each partner may be, depending on the levels of their personal income
• as a partner you will need to take care of your super arrangements, as you are not an employee of the business
• money drawn from the business by the partners are not “wages” for tax purposes