A Partnership Agreement is an agreement between two or more individuals who would like to manage and operate a business together in order to make a profit. It is a relatively common business structure in Australia, and can be contrasted to other common business structures such as a sole trader, a company or a trust. This agreement can be used for a partnership, but is not appropriate for a sole trader, company, trust, or other legal structure.
In a partnership, several partners are able to work together (unlike a sole trader). Each partner shares a portion of the partnership's profits and losses and each partner is personally liable for the debts and obligations of the partnership.
A partnership is an arrangement between the various partners and is not actually a separate legal entity. A partnership is more simple to set up, and is subject to fewer regulatory obligations than a company. Therefore a partnership can have lower set up and administration costs. However, the partners are all liable for any debts or obligations of the partnership, meaning that if the partnership owes a debt, then the partners' personal assets could be used to pay that debt. Furthermore, a partner can become liable for debts that another partner has incurred on behalf of the partnership.
A company is a separate legal entity from its owners (also known as its shareholders). A company is more complicated to set up and has more regulatory/reporting obligations than a partnership does. However, an advantage of a company structure is that it provides limited liability protection for its shareholders. This means that the shareholders are usually only liable for the amount that they invested in the company (and their personal assets can be protected).
In addition, tax rates and obligations can be different for companies than for partnerships in Australia.
No, it is not mandatory to have a written Partnership Agreement, but it is highly advisable to have one. Having a written Partnership Agreement helps protect the interests of all partners. It also helps ensure that the partners understand the terms, are able to cooperate throughout the life of the partnership, and are able to enforce their rights if an issue arises.
In a partnership, a partner's capital contribution is the capital that they initially contribute to the partnership. This could be cash, property, goods or services.
In a partnership, a partner's ownership interest is the partner's share of the ownership of the partnership's assets, earnings or other value. This is often expressed as a percentage.
To enter into a Partnership Agreement, a person should be aged 18 or older and should have the mental capacity to understand what they are doing.
It is also possible for companies to enter a partnership. So, for example, two companies could sign a Partnership Agreement and enter a partnership together.
Once the Partnership Agreement is completed, all of the partners should sign and date the Agreement. For any partners that are individual people (rather than companies) their signature can be witnessed by an independent adult, meaning somebody over 18 years old, who is not involved with the partnership. This means the partners can not witness each other, and people closely connected to the partners (such as their respective spouses) should not act as witnesses either.
Most partners make sure to keep copies of their Partnership Agreement, for their own records. In most cases, if the partners wish to change any terms of the Partnership Agreement at a later date, they make sure to do so in writing.
No, witnesses are not mandatory for a Partnership Agreement, but they are useful for evidentiary purposes. If there is ever a dispute over the Partnership Agreement, witnesses can help to prove that each party's signature is valid.
Witnesses should be independent adults (aged over 18), who have the mental capacity to understand what they are doing. They should not be related to one of the parties. This means the partners can not witness each other, and people closely connected to the partners (such as their respective spouses) should not act as witnesses either.
A Partnership Agreement should contain the following information:
The Agreement may also define management roles within the partnership if the partners wish to do so.
Each state and territory in Australia has a Partnership Act.
General principles of contract law, as provided by the common law, may also apply.
You fill out a form. The document is created before your eyes as you respond to the questions.
At the end, you receive it in Word and PDF formats. You can modify it and reuse it.
Guides to help you
Partnership Agreement - sample template - Word and PDF