Introduction to Partnerships: Establishing a partnership business structure can be a strategic move for small-to-medium enterprises (SMEs) aiming for growth and synergy. However, the decision requires careful consideration of the associated benefits and drawbacks. Collaboration with professionals such as accountants and financial advisers is crucial to informed decision-making. 

Financial Assessment for Borrowing:  

Self-Employed Partnership: 

• Personal tax returns for each partner and a partnership tax return are mandatory. 
• Certain expenses are added back, and income is assessed per the lender’s policies. 
• For those unable to prove income conventionally, low doc loans may be an alternative. 

Law Firm Partner: 

• Law firm partners often receive a base salary and profits share. 
• Typically, 100% of the base income and 80% of partnership income are considered. 
• Currency of bonuses in international firms may impact assessment percentages. 
• Some lenders may require tax returns from the law firm for ownership exceeding 25%. 

Benefits of Partnerships: 

• Synergy Leveraging: Partnerships enable pooling of resources and skills, fostering synergy often challenging for sole traders. 
• Limited Liability Options: Limited liability partnerships allow partners not involved in decisions to be liable only for their proportional business share. 
• Ease of Setup: Setting up with the Australian Taxation Office (ATO) is straightforward and cost-effective. 
• Minimal Reporting Requirements: Yearly reporting involves filing a partnership tax return and personal tax returns, simplifying obligations. 
• No ASIC Business Name Registration: No need for ASIC business name registration if operating under personal or partner names. 
• Flexible Profit Distribution: Profit distribution aligns with capital investment, negotiable in the partnership agreement. 
• Tax Deductions for Super Contributions: Each partner can claim deductions for personal super contributions. 
• Capital Raising Potential: More partners can join, infusing additional capital and resources into the business. 
• Revenue Splitting and Employee Hiring: Partnerships allow revenue splitting and the hiring of staff. 
• Tax Benefits of Non-Separate Legal Entity: Certain tax benefits are available as a partnership isn’t a separate legal entity. 

Drawbacks of Partnerships: 

• Unlimited Liability: Joint and several liability exists between partners unless a limited liability arrangement is in place. 
• No Tax Deductions for Drawn Money: Tax deductions aren’t applicable for money drawn from the business. 
• Unequal Profit Share: Profits may not be evenly distributed, posing challenges if there are more than two partners. 
• Trust and Joint Liability: 
• Trust between partners is crucial as both share joint and several liability. 
• Shared Decision-Making: Certain decisions must be collectively made, potentially causing delays and disagreements. 
• Complex Transition to New Structure: Transitioning from a partnership to a new structure is intricate, requiring dissolution and new agreements. 
• Capital Gains Tax Implications: CGT is payable each time a partnership dissolves, posing tax implications. 

Setting Up a Partnership: 

• Decide on operating under personal or partner names and obtain an ABN if using a business name. 
• Determine the number of partners (2 to 20) and draft a partnership agreement specifying rights, responsibilities, and liability limits. 
• Choose among three partnership types: general, family, or limited, each regulated under the Partnerships Act 1982. 
• Seek legal and financial advice before finalizing the structure. 

Taxation in a Partnership: 

• Annual partnership tax returns, filed via TFN or ABN, separate profits per the partnership agreement. 
• GST registration becomes mandatory if the business turnover exceeds $75,000 annually. 
• Each partner is individually responsible for super payments as they aren’t considered employees. 
• If receiving Personal Services Income (PSI), individual partners must treat it as personal income for tax purposes. 

Additional Tips on Partnerships: 

• Limiting Liability: Consider forming partnerships between companies or trusts to limit liability to the entity. 
• Comprehensive Partnership Agreement: Draft a detailed partnership agreement, addressing profit distribution, decision-making, dispute resolution, and other key aspects. 
• Professional Advice: Seek legal and financial advice before committing to a partnership business structure. 

Forming a partnership can be a powerful step for businesses, unlocking collaborative potential. However, the decision warrants careful planning and consultation with professionals to navigate both the advantages and challenges inherent in this business structure.