Partnership Deed

A Partnership Deed may assist in controlling the management and ownership of the partnership.  While every Partnership Deed will be different (depending on the nature of the business), there are certain issues they usually cover including, but not limited to:

• the rights and obligations of the partners;
• how much money each partner brings into the partnership (i.e. their capital contributions);
• how the profits will be divided and what the partners’salaries (if any) will be;
• how partners can access the firm’s bank accounts and funds;
• how disputes are to be handled;
• what happens if an existing partner dies, gets sick, retires or wishes to leave the business (i.e. rules of exit); and
• allowing the partnership to continue notwithstanding the departure or death of a partner.

State legislation does not adequately deal with these issues and this is why a Partnership Deed is essential in:

• providing clarification and guidance for the partners; and
• limiting the scope and duration of any dispute between the partners.

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Partnership Name
• What is a partnership?
• Call your partnership anything you like
• How do I prove a Partnership exists?
• What is in this Partnership Deed?
Partnership Nature
• Partnership's Business
• Disadvantages of Partnerships
The Partners
• Is the partner a trustee of a Family Trust?
• Can you have a partnership of Family Trusts?
• All partners’ interest must total 100 (exactly)
• Can a Company be in a partnership?
• Can a Partner receive a Salary?
Registered Address
• Which address?
Partnership Starts
• No idea when the Partnership will start?
• Started your partnership many years ago?
• Not starting your partnership until a future date?
Specify Start Date
• No idea when the Partnership will start?
• Started your partnership many years ago?
• Not starting your partnership until a future date?
Accountants
• Why put in the Accountant's details?
• Can I change the Accountant later?
Accountant's Details
• Complete at least “Accountant's Firm Name”
Bankers Name
• Don't yet have a bank?

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Partnership Name

• What is a partnership?

  A partnership involves two or more people (but no more than 20, with some exceptions) going into business together in order to make a profit.
  
  A partnership is a relationship, not a separate legal entity. Each partner jointly owns all the business assets and liabilities. Accordingly, it is important that each partner knows their rights, responsibilities and obligations. A written Partnership Deed can provide clarity for the partners on such rights and obligations.

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• Call your partnership anything you like

  Generally speaking, you can choose any name you like for the partnership. However, people often call the partnership after the:

  • names of the partners (e.g. The Smith Weston Partnership); or
  • business name or company name (e.g. The Brick Layers of New York Partnership).
  In most cases a partnership will need to register a business name with the Australian Securities and Investments Commission (ASIC) unless it uses the surnames of all the partners involved.

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• How do I prove a Partnership exists?

  Whether or not an association constitutes a partnership is a question of fact. However, a written Partnership Deed can help establish the existence of a partnership to satisfy the law and the Australian Taxation Office.

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• What is in this Partnership Deed?

  A Partnership Deed usually covers the rights and obligation of the partners in running the partnership business.
  
  While every Partnership Deed will be different, depending on the nature of the business, they usually cover things such as:

  • how much money each partner brings into the partnership;
  • how the profits will be divided and what the salaries will be;
  • what each partner will do in the company - the different roles and responsibilities;
  • who is going to provide the financial reports;
  • how partners can access bank accounts and funds;
  • how disagreements are to be handled; and
  • what is to happen if a partner wants to leave or the business is to be sold.
  This Partnership Deed covers the basic issues. As time goes on you can add to this Partnership Deed. For example, you can have the Deed amended to allow for additional partners, or you can obtain some insurance and put in place a Business Succession Plan.
  
  For the time being this contains the basic things needed in a partnership. If you require a specially crafted Partnership Deed then contact Law Central on support@lawcentral.com.au

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Partnership Nature

• Partnership's Business

  Partnerships can exist in a number of different industries, for example:

  • Property Rentals and Development
  • Investment Syndicate
  • Agriculture
  • Panel Beating
  • Legal
  • Dentistry
  • Medical
  • Electrical
  • Engineering
  • Advertising
  • Computers
  • Financial Services
  The above are examples of what can be described as the partnership's business.

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• Disadvantages of Partnerships

  An example of some of the disadvantages of a partnership:

  • Liability: The most significant commercial disadvantage of a partnership is the joint and several liability of its partners.  “Joint and several liability” means that if any of the partners do not have enough money or assets to pay their share of the debt, the other partners may be personally liable. This arises from the fact that the partnership is not a distinct legal entity.
    
    Another consequence of a partnership not being a separate legal entity is that partnerships as such cannot own property.  In addition, whilst the partnership cannot be convicted of a crime or be subject to other liabilities, individual members of the partnership may be personally liable in crime, tort or contract.
  • Asset Exposure: There is generally no asset protection, meaning that the partners’ personal assets may need to be used to repay the business’debts.
  • Tax Disadvantages: There may be some CGT disadvantages in the way the tax legislation treats an individual partner’s share in the partnership.
  • Limitations to Partners being Added: A partnership cannot have more than 20 partners.  

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The Partners

• Is the partner a trustee of a Family Trust?

  It is quite popular for the partner to be a trustee of a family trust. If so this is how you put in the details:
  
  * Human
  First Name: Fred
  Second Name: Joseph
  Surname: Bloggs as trustee for the Smith Family Trust
  
  If the trustee is a company:
  
  * Company
  Company Name: ABC Pty Ltd as trustee for the Smith Family Trust
  ACN: 838 383 838
  
  WHAT IF THE FAMILY TRUST HAS MORE THAN ONE TRUSTEE?
  
  Do this:
  
  First Name: Harry
  Second Name: Brett
  Surname: Malone, as co-trustee for the Malone Family Trust
  
  First Name: Joanne
  Second Name:
  Surname: Malone, as co-trustee for the Malone Family Trust
  
  For press "add" for each partner. Don't forget to halve the partnership interest (otherwise you are double counting). For example, let’s say that the Malone Family Trust had 48% of the partnership and had 2 trustees, Harry and Joanne. Harry and Joanne would get 24% each - this totals 48%.

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• Can you have a partnership of Family Trusts?

  Yes, you can. See the hint above on how to insert these details.
  
  WE HAVE 3 FAMILY TRUSTS - ALL HAVE THE SAME TRUSTEE. HOW DO WE INSERT THOSE DETAILS?
  
  Company Name: ABC Pty Ltd, as trustee for the Davies Family Trust
  
  Company Name: ABC Pty Ltd, as trustee for the Smith Family Trust
  
  Company Name: ABC Pty Ltd, as trustee for the Dawkins Family Trust
  
  DOES THAT MEAN THAT THE SAME COMPANY SIGNS THE PARTNERSHIP 3 TIMES?
  
  Yes. That is correct. You enter the same company in 3 times. Keep clicking "Add" to get the partner in 3 times.

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• All partners’ interest must total 100 (exactly)

  All partners’ interest when added up together must total 100 (exactly).
  
  Each partner’s interest must be expressed as a percentage out of 100 (E.g. for 50% (or a 1/2) you type in 50
  
  EXAMPLES:
  1% type in 1
  2% type in 2
  5% type in 5
  6% type in 6
  7% type in 7
  8% type in 8
  9% type in 9
  10% type in 10
  20% type in 20
  50% type in 50
  75% type in 75
  99% type in 99

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• Can a Company be in a partnership?

  Yes. Human beings and companies can be in partnerships. You can have any combination of the above.
  
  Alternatively, you can have XYZ Pty Ltd and ABC Pty Ltd in partnership with one another.
  Law Central’s questions allow you to put in humans and companies as you see fit.

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• Can a Partner receive a Salary?

  Yes, a Partner can receive a salary.
  
  A Partner (or director of a Partner, if a company) may receive, for work done, a share of the profits in a different proportion to that of their Partnership Interest.
  
  This is only if an arrangement is mutually agreed from time to time in writing before any such work is started. It is best to do this with an Employment Contract, but can be done by an exchange of emails, if you prefer. You do this after you have built the Partnership Deed. The Partnership Deed expressly allows for salaries if the Partners all agree.
  
  IS THE PAYMENT OF A SALARY AN EXPENSE OF THE PARTNERSHIP FOR TAX PURPOSES?
  
  Any such payments are deemed a partnership outgoing and not part of the Partner’s share of the profits. Under such an arrangement the other Partners are entitled and usually require the "working" Partner to enter into a contract of employment. Such payment is generally not an allowable deduction under section 8-1 Income Tax Assessment Act 1997 and cannot be taken into account when calculating the net income (or loss) of the partnership.
  

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Registered Address

• Which address?

  You can use any address that is most useful. For example you could use the partnership's Post Office Box, or where you trade or your accountant's address.
  
  If you move later that doesn't matter. You won't need to update your address in this Partnership Deed.
  

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Partnership Starts

• No idea when the Partnership will start?

  If you don't know when your partnership is going to start, or you cannot recall when it did start then press "Don't know the date yet".
  
  We will then make the commencement date the date of execution of the Partnership Deed.

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• Started your partnership many years ago?

  If you started the partnership some time ago and are only now formalising the relationship, type in the actual date you started the partnership, not the current date (e.g. 20 December 1991).
  
  If the partnership only starts on the day you sign then leave just tick "Don't know the date yet".
  

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• Not starting your partnership until a future date?

  Starting your partnership sometime in the future? If you know the date then press "Specify a Date".
  
  If you don't know the date then press "Don't know the date yet".
  

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Specify Start Date

• No idea when the Partnership will start?

  If you don't know when your partnership is going to start, or you cannot recall when it did start then press "Don't know the date yet".
  
  We will then make the commencement date the date of execution of the Partnership Deed.

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• Started your partnership many years ago?

  If you started the partnership some time ago and are only now formalising the relationship, type in the actual date you started the partnership, not the current date (e.g. 20 December 1991).
  
  If the partnership only starts on the day you sign then leave just tick "Don't know the date yet".
  

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• Not starting your partnership until a future date?

  Starting your partnership sometime in the future? If you know the date then press "Specify a Date".
  
  If you don't know the date then press "Don't know the date yet".
  

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Accountants

• Why put in the Accountant's details?

  The more things that you can agree on now the better. If you have an accountant then it is a good idea to put in the accountant's details in the Partnership Deed.
  
  The partners can always agree to change the accountant at a later date by a simple majority vote.
  
  If you have no accountant then merely answer "no" to this question.
  

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• Can I change the Accountant later?

  Yes, the partners can come together and by majority vote change to another accountant.

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Accountant's Details

• Complete at least “Accountant's Firm Name”

  You need at the very minimum to complete the "Accountant's Firm Name and address".
  
  If your accountant trades under his or her own name (e.g. Peter Smith) then just type in that name under the "Accountant's Firm Name".
  

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Bankers Name

• Don't yet have a bank?

  The more exact you are in your Partnership Deed the better. Therefore it is best to note the name of your bank and the branch.
  
  If you do not have a branch then the name of the bank will do (e.g. Westpac)
  
  If you do not have a bank at all then just leave this blank.
  

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This document has been prepared by the law practice Law Central Legal

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