Investment partnerships became more widely known and in fact, popularized as a result of Warren Buffet’s partnerships during the 1950s and 1960s. Although, it is essential to note that investment partnerships need to be effectively set up and sufficiently understood before starting such a venture, as it may end up leading to costly repercussions for both the business and the individuals involved. Investment partnership can also be known as a limited investment partnership and limited partnerships.
Largely, an investment partnership involves a partnership that offers different tax benefits and liability for those involved in this partnership. In this partnership, there is limited liability for partners involved, including respective proportion of sharing of debt, based on each respective partner’s investment into the business. Often this will involve one to two general partners and then subsequent limited partners, who act as silent partners and do not assist in managerial decisions as the aforementioned partners do.
Steps to starting an investment partnership:
1. Partnership Agreement
A partnership agreement is an essential part of establishing an investment partnership. The agreement should include the duties and limitations of each partner, the distributing of capital, profits and losses, and rules governing the distribution of the partnership. Commonly, this is drawn up by a lawyer employed by the partners. Although, by utilizing our customizable documents available online, a partnership agreement can be created in under 20 minutes.
2. ABN and GST
When starting a partnership, you must apply for an ABN. It is best to refer to our ABN generator which will apply for an ABN on behalf of you. You can find this here. Following this, you will also need to register the partnership for GST, if annually the GST totals to greater than $75,000 or more.
3. TFN and Other Considerations
It should be noted that the partnership should have its own TFN, encapsulating the partnership as a whole. Further, it is important to note that each partner is required to arrange their own superannuation, although the partnership is required to look after the superannuation arrangements of their employees.
Another important matter to consider is that of confidentiality. This can be dealt with by a confidentiality clause within the partnership agreement and signed between partners of the business. Other related clauses include a non-compete clause, which ensures that privileged and confidential information is not disclosed and that a partner does not establish a business which has competing interests to the existing partnership.
4. Lawyer Reviews
As investment partnerships differ from common partnerships, it is ideal that you employ a lawyer to review your agreements and ensure that all requirements are met prior to commencing operations. Further, under the directive of the lawyer or your own initiative, it may be required that you seek the assistance of an accountant to keep track of your net partnership income and other notables as the year progresses.
All in all, starting an investment partnership requires numerous steps to ensure that you and your business interests are adequately protected. Although, from adequate preparation and a strong start, you can be assured that your investment partnership has the greatest chance of success.