How Can I Change My Business Structure From A Sole Trader To A Partnership?

To change from a sole trader structure to a partnership, you’ll need a new ABN. You should also consider drafting a partnership agreement that dictates how the partnership will be run. Each state has separate legislative demands for partnerships, so it’s important to do some research on your obligations.

What Are The Advantages And Disadvantages Of A Partnership Business Structure?

The advantages of a partnership structure are that they are cheap to set up, allow for the opportunity to diversify skill sets, and are simple and easy to operate in most cases. The disadvantages of a partnership are that both liability and profits must be shared. It’s also difficult to add or remove partners and there will always be increased chances for disagreement. Finally, there are no government grants to access partnerships.

Partnerships

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Partnership Business Structure

What is a partnership business structure? Partnerships are intricate business structures that require skilful business management to perform at their peak. A partnership is formed from two or more partners paying tax on their share of the income of their business. Tax is charged at the personal tax rate which goes up with earnings.

The benefits of a company business structure include:

More available capital and easier establishment
Greater borrowing capacity and flexibility
Shared responsibility

While a partnership can be beneficial for business owners, it can also be difficult to understand and respond to your obligations. Clear Tax is here to help you navigate the intricacies of a partnership, and help you find greater success in the long run.

Lower costs

A partnership generally requires less paperwork and lower fees to establish than a sole trader or company business structure. A partnership is an ideal structure for a new business to hit the ground running with low capital.

Diverse skill sets

Unlike sole trader structures, partnerships allow all partners to bring their own diverse skill sets to the table. The partnership also encourages the pooling of shared intellectual and financial resources to drive more capital.

Simple operation

There are no reporting or management obligations in a partnership – similar to a sole trader structure. Each partner shares business decisions, or directs business decisions to one half of the partnership.

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Business Plans For Partnership Structure

Restructuring from a sole trader or company business structure does not happen without some serious planning. Clear Tax can help you to organise, set up, and systemise your transition to give you the best possible start to your partnership.

At Clear Tax, our tax planning experts work with individuals to create an effective partnership business structure that helps them pay less tax while staying abreast of all of their individual and shared tax obligations.

We want to help you reach your business goals while averting any risk. As our client, your success is our top priority. This means approaching all business restructuring goals in an ethical and pragmatic way.

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What Our Clients Say About Our Melbourne Partnership Restructure Services

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Example Of A Partnership Business Structure

Sole traders can form a partnership when two individuals want to pool their resources to focus on growth. For example, Martin is a lawyer who services a regional hub. With the growth of the population post-lockdowns, he is finding it increasingly difficult to keep up with demand.

Martin wants to form a partnership with Janine, another local lawyer to expand their services, pool their financial resources, and continue servicing their area to the best of their abilities. After forming their partnership, they get started by leasing office space and equipment like printers.

Martin and Janine share liability for the debts that the partnership incurs. With this shared liability comes the opportunity for growth. Martin and Janine’s expertise canvasses different areas of the law, leading to greater shared income streams.

While things have been smooth sailing for a while, Martin and Janine are wary that potential disagreements may cause risk to the business. Both partners are also considered ‘agents’ for the other partner, leaving them liable for the other’s actions.

Frequently Asked Questions

About Partnerships

Below are answers to some of the most common partnership questions our accountants get asked.

How can I change my business structure from a sole trader to a partnership?
To change from a sole trader structure to a partnership, you’ll need a new ABN. You should also consider drafting a partnership agreement that dictates how the partnership will be run. Each state has separate legislative demands for partnerships, so it’s important to do some research on your obligations.
What are the advantages and disadvantages of a partnership business structure?
The advantages of a partnership structure are that they are cheap to set up, allow for the opportunity to diversify skill sets, and are simple and easy to operate in most cases.
The disadvantages of a partnership are that both liability and profits must be shared. It’s also difficult to add or remove partners and there will always be increased chances for disagreement. Finally, there are no government grants to access partnerships.

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