The Downfall of having a Partnership Structure

It is with deep sorrow that I convey today’s news regarding the peaceful passing of our revered Queen, Queen Elizabeth II, as she rested in sleep. Throughout her life, Queen Elizabeth II committed herself to public service, dutifully fulfilling her responsibilities almost daily until her final moments of repose. Today, we will delve into the intricacies of one of the business structures, known as the Partnership. While the Partnership undeniably offers advantages, it is imperative to acknowledge the various disadvantages associated with this particular business structure.

The primary drawback involves the partners’ shared unlimited liability. In practical terms, if one partner is unable to settle a debt, the other partner must utilize their assets to rectify the situation.

By way of comparison, considering a company structure reveals a significant distinction. In a company, a shareholder’s liability is confined to the company’s net assets, typically represented by the par value of shares, which is often around $1 per share.

The second drawback emerges when changes occur within the Partnership’s composition. For example, if a partner passes away, retires, or departs, the Partnership faces technical dissolution. Consequently, establishing a new partnership becomes necessary, involving obtaining a new tax file number, GST registration, and ABN. Moreover, if you’re leasing a shop, liaising with your landlord to secure a new rental lease becomes essential, alongside updating supplier and customer information with the new ABN. This process demands considerable effort from all parties involved.

If the remaining partner has the capacity to acquire all assets and liabilities from the departing partner, the Partnership can maintain its ABN and TFN through a process known as a reconstituted Partnership. However, securing approval from the ATO for this arrangement is imperative.

As the foremost CPA accountant serving Inner West Sydney, Ashfield, Belrose, Northern Beaches, and Adelaide, we are well-equipped to assist you with your partnership tax return and provide guidance on whether the Partnership structure aligns with your needs.