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A partnership is a business structure made up of 2 or more people who distribute income or losses between themselves.

There are 3 main types of partnerships:

  • General partnership (GP) – is where all partners are equally responsible for the management of the business, and each has unlimited liability for the debts and obligations it may incur.
  • Limited partnership (LP) – is made up of general partners whose liability is limited to the amount of money they have contributed to the partnership. Limited partners are usually passive investors who don’t play any role in the day-to-day management of the business.
  • Incorporated Limited Partnership (ILP) - is where partners in an ILP can have limited liability for the debts of the business. However under an ILP there must be at least one general partner with unlimited liability. If the business cannot meet its obligations, the general partner (or partners) become personally liable for the shortfall.

Key elements of partnerships

If you’re looking at setting up a partnership structure consider the following key elements.

A partnership business structure:

  • are relatively easy and inexpensive to set up
  • have minimal reporting requirements
  • require separate tax file numbers (TFN)
  • must apply for an Australian business number (ABN) and use it for all business dealings
  • share control and management of the business
  • don’t pay income tax on the income earned - each partner pays tax on the share of the net partnership income each receives
  • require a partnership tax return to be lodged with the Australian Taxation Office (ATO) each year
  • require each partner to be responsible for their own superannuation arrangements
  • must register for GST if turnover is $75,000 or more

Partnership laws

Individual states and territories govern partnership laws.

Read the partnership laws in your state or territory:

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