A partnership is a less formal type of business relationship recognised under Australian law. Partnerships enjoy lower set-up costs and minimal ongoing costs. However, the flip-side of this is that in a partnership, the partners are personally liable for the business’ debts, as the business is not a separate legal entity. This also means that the business is not ‘eternal’ and will cease to exist once the partners die or move on. Partners, in that capacity, owe fiduciary duties, as opposed to directors duties under the Corporations Act 2001 (Cth).
Partnerships are usually governed by the relevant state or territory Partnership Act, e.g. Partnership Act 1892 (NSW).
Partnerships should be founded upon a legal agreement that sets out the terms of the relationship and how the partnership will operate, to ensure both partners are clear about their rights and responsibilities, as well as how changes to the business will be managed. It should include provisions for:
- What happens when a partner retires?
- How can new partners be appointed?
- How should disputes be resolved?