Partnership Structure
Partnerships
A general-law partnership is a relationship between two or more persons carrying on a business with a view to profit. Partnerships are governed by state government laws. It is usual to have a formal overriding partnership agreement which outlines the rules by which the partnership conducts its business, such as profit-share agreements and arrangements for partners‘ salaries, new partners, and retirement of partners.
A partnership, unlike a company, has no separate legal personality distinct from its members.
Taxation of partnerships - For tax purposes, a partnership is treated notionally as a separate entity. In this context, a partnership is an association of persons or entities that carry on business as partners or receive income jointly – except for limited partnerships, which are essentially taxed as companies (see below). A partnership needs its own TFN.
Although the partnership itself is not liable to tax, it is still required to lodge a separate income tax return to report its partnership income or loss. Each partner includes their individual shares of the partnership net income or loss in their individual tax returns. Partnership income retains its character in the hands of the partners.
Limited partnerships - In a limited partnership at least one of the partners has limited liability. Limited partnerships may be established under specific state laws or overseas. The liability of the limited partners is usually limited to their capital contribution and they are generally precluded from being involved in the management of the partnership business.
For tax purposes, most limited partnerships are corporate limited partnerships, and are treated essentially as companies.
Please note the information contained on this website is general in nature and should not be relied upon as tax advice. If you have a question please contact Sean Urquhart on 02 8264 0755.
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16th February 2010, 02:49 PM
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