Author Topic: Partnership business structure  (Read 1883 times)


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Partnership business structure
« on: June 18, 2019, 11:22:31 AM »
A partnership is when 2 or more people operate a business as co-owners and share income. All co-owners (i.e. partners) act on behalf of each other in the business. Like the sole trader structure, a partnership entity is not separate from its operators.

Advantages of partnerships
Partnerships are easier and less expensive than companies to set up.
Partners may carry on business under a trading (business) name.
Partnerships combine the resources and expertise of a number of people.
Partnerships are simple to administer. Profits and losses are shared between partners according to his/her share (as specified in the 'partnership agreement').
Unlike companies, partnerships do not have to disclose their profits to the public (i.e. greater privacy).
Changing the legal structure is relatively simple (i.e. changing from a partnership into a company at a later stage).

Disadvantages of partnerships
All partners together are personally responsible for business debts. Each partner is individually liable for debts incurred by the other partners. This is known as being 'jointly and severally' liable (i.e. unlimited liability).
All partners have a right to participate in the management of the partnership (unless otherwise agreed).
Tax is charged at the personal tax rate. As business earnings increase, so does the tax rate.
Partners cannot transfer their ownership to someone outside the partnership unless the other partner(s) agree.
Personal differences may interfere with business.

Limited partnership formation
To form and register a limited liability partnership or an incorporated limited partnership (ILP), visit the Queensland Government limited partnership forms and fees page. Applications costs will vary and it may take up to 1 week to process your application. A limited partnership formation is only required if you have a silent partner.

Other business structures
Sole trader

Company business structure
By law, a company is a distinct legal entity separate from its shareholders or officers. In Australia, the most common types of company are:

'proprietary limited' companies (cannot raise money from the general public through share issues)
'public' companies (usually formed to raise or borrow public money by listing the company's shares for trading on a stock exchange).
In setting up new ventures to commercialise an idea, one, two or more people can set up a Pty Ltd company. They buy a share or shares. In many cases, the initial shareholders are a husband and wife, or two close friends. They may each own half the shares in the company, often through an initial share offering of $1 each.

The vast majority of incorporated organisations in Australia are such private companies. These companies have shareholders, company directors and managers who are typically the same two or three people.

All companies are governed by the Australian Securities and Investments Commission (ASIC), which administers the Corporations Act 2001 (Cwlth) and other legislation. Public companies must also comply with the rules of the Australian Stock Exchange.

Advantages of companies
Generally, shareholders can only lose the value of their shares and are not liable for the company's debts (i.e. limited liability).
Legal arrangements are in the company's name, not in the name of its directors and managers.
The business structure ensures continuity of management and ownership in the event of the death or disability of key people (because company shares may be transferred).
The tax rate for companies is less than the highest rate for individuals.

Disadvantages of companies
Companies are more regulated than other business structures.
The rules for establishing and running a company are more complex and costly than other business structures.
Lessors, suppliers and lenders are reluctant to lend money or enter into contracts or leases with proprietary limited companies unless directors or shareholders provide personal guarantees.
If directors fail to meet their legal obligations, they may be held personally liable for the company's debts.
Profits distributed by companies to shareholders are taxable.

Trust business structure
A trust is a relationship where a trustee (an individual or a company) carries on business for the benefit of other people (the beneficiaries). For instance, a trustee may carry on a business for the benefit of a particular family and distribute the yearly profit to them.

A trust is not a separate legal entity. A trust may be discretionary (i.e. the trustee decides how profit will be distributed among beneficiaries) or have fixed interests (i.e. it will benefit certain people in predetermined proportions). Commonly, the trustee is a company (a corporate trustee); often this business structure is more tax effective.

Advantages of a trust
A trust provides asset protection and limits liability in relation to the business.
Trusts separate the control of an asset from the owner of the asset and so may be useful for protecting the income or assets of a young person or a family unit.
Trusts are very flexible for tax purposes. A discretionary trust provides flexibility in the distribution of income and capital gains among beneficiaries.
Beneficiaries of a trust are generally not liable for the trust debts, unlike sole traders or partnerships.
Beneficiaries of a trust pay tax on income they receive from a trust at their own marginal rates.

Disadvantages of a trust
Establishing a trust costs significantly more than establishing sole traders and partnerships.
A trust is a complex legal structure, which must be set up by a solicitor or accountant.
The trustee has a strict obligation to hold and manage the property for the exclusive benefit of the beneficiaries.
Operation of the business is limited to the conditions outlined in the trust deed.
As with companies, there are extensive regulations that trusts must comply with.
Losses derived in a trust are not distributable and cannot be offset by beneficiaries against other income they may have.
Unlike a company, a trust cannot retain profits for expansion without being subject to penalty rates of tax.