There are many ways to start a business such as sole trader, partnership, company and trust based on your situation.
A partnership is a group or association of people who carry on a business and distribute income or losses between themselves. For example, if you and a friend or family member decide to set up a business together, you might operate it as a partnership. A partnership is relatively inexpensive to set up and operate. The partners share income, losses and control of the business.
To start a partnership does not require you to fill out any paperwork. However, creating a written partnership agreement is more assured. The content of agreements might include: business details, roles, expectations and operational outline.
There are three types of partnerships: general partnership, limited partnership and joint venture.
General partnership is the most common type. In this concept, partners agree to unlimited liability, which means liabilities are equally divided among the partners. So do the business management responsibilities, and any kind of profits.
The limited partnership shows that the liabilities and input of each partner are based on their percentage of investment. This is best suited to short-term agreement.
A joint venture is different to the general partnership. Two or more different entities join into a new one, but may not be a partnership. The general partnership is formed by two or more people into a single business entity.
Pros
The main benefits of general partnership is that it is cheap to set up. Compared to partnership or companies, it is less paperwork and less fee to start up. This is an ideal way for those businesses who are starting from scratch with limited capital.
Compared to the sole trader, the general partnership allows each partner to bring a different skill set to the table. That means the partnership has more opportunity to create more capital when it start.
The operation of the general partnership is simple and more flexible than other structures. It is similar to the sole trader, it does not have management or reporting obligations to follow. How they operate depends on the partners themselves.
Lastly, the taxation of the partnership is straightforward. The individuals operating a partnership structure are taxed at an individual tax rate.
Con
First of all, partners sharing all the liabilities which might put their personal assets at risk. If you are worry about the liability, the consider the limited partnership, company or trust instead. Besides the liability, general partners also share all the profits. In the general partnership, all decisions are discuss by partners. If the discussion does not go well, the complicated and unpleasant situations can arise. It might also ruined the business and personal relationship.
When adding or removing a partner, the existing partnership need to be dissolved and create a new one. It can make the process more difficult. Finally, the general partnership cannot access government grants or tax concessions, such as research and development tax concession, or early stage investor concessions.
For the tax requirements, each person involved in the partnership must declare their individual share of income on their personal tax return, and lodges this under their tax file number. Because the business partnership itself does not pay tax on its income.
If you need any suggestions and seek assistance, contact BOA & Co. accountants on 1300 952 286, our Specialist will be pleased to assist you.