How to Start an Investment Partnership

An investment partnership is an arrangement where two or more people (or companies, or trusts) pool money to invest together and share the returns on an agreed split. If you’re working out how to start an investment partnership in Australia, the real work comes down to four decisions: the structure you use, what your partnership agreement says, which tax registrations you need, and whether your group has quietly become a managed investment scheme.

Most investment partnerships start over a barbecue. Someone has a property lead, someone else has spare cash, and everyone agrees to go halves. The paperwork gets pushed to later. Later is usually the day one partner wants their money back and nobody can agree what their share is worth.

What is an investment partnership, really?

Strip away the jargon and an investment partnership is a group of people who agree to put money into investments together, share the profits and losses, and set rules about who makes the calls. The investments might be listed shares, a rental property, a stake in a private business or a small venture fund.

Warren Buffett made the idea famous. From 1956 to 1969 he ran a set of US investment partnerships that charged no management fee. Instead, he took a quarter of the profits above a 6% annual return. Plenty of Australian investors still borrow that model.

Here’s the part the Buffett story leaves out. Once you manage other people’s money for a share of the profits, Australian law starts treating you less like a partner and more like a fund manager. That’s allowed. It just comes with licensing questions you need to answer before the first dollar arrives.

There’s a second wrinkle. For tax purposes, the ATO treats people who receive income jointly as a partnership, even when there’s no business. Two siblings who co-own a rental property are a partnership at tax time, whether or not they signed anything. Most co-owners don’t know this, and they’re surprised to learn the ATO splits rental income by who’s on the title, not by any side deal they made.

Which structure should your investment partnership use?

This is the decision that matters most, and the one people rush. Small groups default to a general partnership because it costs nothing to set up. That works for two people buying shares together. It’s a poor fit for six people pooling money to buy a commercial property.

Structure	Liability	Tax	Best for
General partnership	Unlimited, joint and several, for every partner	Flow-through: each partner pays tax on their share	Two to a handful of people who all make decisions together
Limited partnership (state-registered)	General partner unlimited. Limited partners capped at their contribution while they stay out of management	Usually taxed as a company (a corporate limited partnership)	Passive investors backing one active manager
Incorporated limited partnership (VCLP or ESVCLP)	As above, with separate legal personality	Flow-through once registered under the Venture Capital Act 2002	Venture capital funds investing in eligible Australian companies
Company	Shareholders limited to unpaid share capital. Directors carry their own duties	Company tax, then franked dividends to shareholders	Groups that want limited liability and room to add investors
Unit trust with a corporate trustee	Unitholders generally protected. The trustee company carries the risk	Flow-through if income is distributed each year	Property syndicates and fixed shares in a pooled asset

Our view: if anyone in the group will be passive, a general partnership is the wrong default. A silent partner in a general partnership carries exactly the same unlimited liability as the person making the decisions. Silence buys them nothing.

Limited partnerships sound like the fix, but read the fine print. Under Division 5A of the Income Tax Assessment Act 1936, most limited partnerships are taxed as if they were companies, so losses stay trapped inside rather than flowing to partners. Registered VCLPs and ESVCLPs are the exception and keep flow-through treatment.

The liability shield is conditional too. A limited partner who starts directing investment decisions risks being treated as a general partner. If your investors want a say on every deal, a company with a shareholders agreement will serve them better, and Lawpath can register a company for you online with the ASIC paperwork handled.

For property syndicates, accountants reach for a unit trust deed with a corporate trustee more than anything else. Units make unequal contributions easy to record, and an investor can sell their units later without unwinding the whole arrangement.

How to start an investment partnership in Australia: 7 steps

Here’s the order we’d follow. It puts the cheap conversations first and the expensive ones last.

1. Agree the mandate before any money moves

Write down what you’ll invest in, how much each person contributes, your time horizon and who can approve a purchase or sale. One page is plenty. It becomes the brief for your agreement.

Most groups agree on the first investment and nothing else. The first deal is easy. The second deal, where only half the group wants in, is where partnerships crack.

2. Check you’re not creating a managed investment scheme

This is the step most guides skip, and it has the sharpest teeth. If people contribute money to a common pool to get a financial return, and they don’t have day-to-day control over how it’s invested, you’re close to the legal definition of a managed investment scheme.

ASIC’s guidance is that a scheme must generally be registered if it has more than 20 members or is promoted by someone in the business of promoting schemes. Wholesale-only schemes can be exempt from registration, but their operators still need a financial services licence in most cases. Advertising your little fund to friends of friends on social media is how small groups drift into this without noticing.

Partnership law has its own cap. Section 115 of the Corporations Act 2001 (Cth) restricts partnerships of more than 20 members that carry on business for profit, with exceptions for certain professions. If your group is heading towards that number, read our guide to the maximum number of partners and change structure before you get there.

Try this test. If every partner genuinely takes part in decisions, you’re on safer ground. If some people transfer money and wait for statements, get advice before anyone transfers a cent.

3. Choose your structure and register it if needed

General partnerships have no registration step. It exists the moment you carry on business together with a view to profit, paper or no paper. That’s why so many people are in a partnership without realising it.

Limited partnerships only exist once they’re registered with your state or territory regulator (NSW Fair Trading, for example), and the limited partners’ protection depends on that registration. Incorporated limited partnerships have their own process and are built for venture capital. Our incorporated limited partnerships explainer walks through how they work.

4. Sign a written partnership agreement

Without one, your state’s Partnership Act fills the gaps. Its default rule is that partners share capital and profits equally, no matter who put in what. For an investment group with unequal contributions, that default is almost never what anyone intended.

Start with a partnership agreement template written for Australian law, then tailor it for capital calls, valuation and exits. The next section covers exactly which clauses to add.

5. Get your ABN and TFN, then check GST

Your partnership needs its own ABN and TFN if it carries on an enterprise, separate from each partner’s personal numbers. You can register an ABN for your partnership through Lawpath, and apply for the TFN at the same time.

GST is where investment partnerships differ most from trading ones. Registration is compulsory once your GST turnover hits $75,000, but input-taxed sales such as interest, most financial supplies and residential rent don’t count towards GST turnover. A partnership that only holds shares or rents out houses may never need to register. One that builds and sells new homes, or leases commercial premises, almost certainly will.

6. Open a partnership bank account and keep capital accounts

Run every dollar in and out through one account in the partnership’s name. Then keep a capital account for each partner showing what they contributed, what they drew and their share of profit.

Skip this and you’ll regret it. When someone exits, that ledger is your starting point for the buy-out figure. Without it, you’re reconstructing years of transfers from bank statements and memory.

7. Get the structure reviewed before the first investment

An hour with a lawyer costs far less than unwinding a structure after you’ve bought an asset in the wrong name. Stamp duty and capital gains tax on a restructure can dwarf the legal fees. Use Lawpath Quick Quotes to compare fixed-fee quotes from lawyers who work on investment structures.

What should an investment partnership agreement include?

Standard business partnership agreements cover the basics. An investment partnership agreement needs more, because money arrives at different times and the exit is the whole point.

• Capital contributions and capital calls. How much each partner puts in upfront, whether you can call for more, and what happens if someone can’t pay (dilution, a loan from the others, or a forced sale of their interest).
• Profit and loss split. Pro rata to capital, or a hurdle model like Buffett’s where the managing partner earns a bigger share above a set return.
• Decision thresholds. Which calls need a simple majority, which need everyone, and who can sign on the partnership’s behalf.
• Deadlock. What happens when the vote splits down the middle. Name the mediator or expert now, while everyone is still friendly.
• Valuation. How an interest gets valued on exit: an independent valuer, an agreed formula or the last set of accounts.
• Exit and transfer. Notice periods, a right of first refusal for the remaining partners, and whether anyone can sell to an outsider.
• Death, incapacity and bankruptcy. Whether the partnership continues, and how and when a partner’s estate gets paid out.
• Reporting and audit rights. How often partners receive statements and whether they can inspect the books.
• Conflicts and confidentiality. Whether partners can invest in competing deals on their own account. Use a mutual NDA when you share deal information with people who haven’t joined yet.
• Dissolution. How assets get sold or split, and the order for repaying debts, then capital, then profit.

A worked example

Three friends pool money to buy a portfolio of ASX shares. Priya puts in $60,000 and Tom $30,000. Ash puts in $10,000 and agrees to run the portfolio.

With no agreement, the Partnership Act default splits profits equally. Ash collects a third of the gains on 10% of the capital, and Priya is furious by the first tax return.

With an agreement, they split profits pro rata to capital and pay Ash 20% of any return above 6% a year for managing it. Same people, same shares, very different outcome. All three keep a vote, so it still looks like a genuine partnership. If Ash starts taking money from ten more friends, go back to step 2.

(The names and figures are illustrative.)

How is an investment partnership taxed?

General investment partnerships don’t pay income tax themselves. It lodges a partnership tax return each year, and each partner pays tax on their share of the net income at their own marginal rate.

Capital gains work differently from what most people expect. Each partner is treated as owning their share of each asset, so the CGT event happens to the partners, not the partnership. Individual partners can claim the 50% discount on assets held for more than 12 months. A company partner can’t.

Payments to partners aren’t wages. A salary paid to the managing partner is treated as a distribution of profit, with no PAYG withholding and no super guarantee. Each partner organises their own super. If the partnership hires staff, though, normal payroll, PAYG and super rules apply to them.

Corporate limited partnerships flip all of this. They lodge a company tax return and partners are taxed like shareholders receiving dividends. Run the numbers both ways with an accountant before you register a limited partnership.

What we see in Lawpath consultations

Few people book a consultation about an investment partnership. They book one about a falling-out with a co-owner, a valuation fight, or a deal someone swears was agreed on email. Across partnership, co-founder and joint venture consultations, the same problems keep coming back.

• Handshake deals that get disputed later. Ownership shares agreed by email or text, never documented properly, then contested the moment one person wants out.
• 50/50 splits with no tiebreaker. Equal partners with different strategies, and a dispute clause that stalls because nobody named a mediator or arbitrator in advance.
• One partner holds the purse. Where one person handles the money, our lawyers recommend spelling out exactly which costs come off the top before profit is split, and giving everyone else audit rights.
• The wrong party signs. Partners who invest through a family trust or company sign in their own names, so the agreement no longer matches who actually owns the interest.
• Assets moved in at mates’ rates. Transferring an asset into the structure for a token amount invites ATO questions about related-party dealings. Get a valuation you can defend.
• Partnership by default. When a new co-owner joins, our lawyers regularly recommend a company over a partnership, because every partner is exposed to liability for the others’ conduct.

None of these are exotic. Each one is cheap to fix at the start and expensive to fix after the money is invested.

When is a partnership the wrong vehicle for investing together?

Partnerships suit a small group of people who know each other, invest together and all want a say. Watch for these signs that you’ve outgrown it.

• Most of your investors are passive. A company or unit trust protects them better, and a limited partnership often means company tax anyway.
• You plan to raise from people you don’t know. That’s fund territory. Talk to a lawyer about financial services licensing before you promote anything.
• Members will come and go. Every change of partner technically ends one partnership and starts another. Units or shares transfer far more cleanly.
• You want to keep profits in the structure. Partnership income is taxed in partners’ hands every year whether or not it’s paid out. A company can retain profits at the company rate.

Investment partnership FAQ

Do I need a lawyer to start an investment partnership?

Not legally. You can form a partnership with no paperwork at all. But if partners contribute unequal amounts, or anyone will be passive, a lawyer’s review of your agreement and the managed investment scheme question is cheap insurance against an expensive dispute.

How many partners can an investment partnership have?

Section 115 of the Corporations Act restricts partnerships carrying on business for profit to 20 members, with exceptions for certain professions. Separately, a pooled investment with more than 20 members generally needs registration as a managed investment scheme.

Is an investment partnership the same as a limited partnership?

No. An investment partnership describes what you do. A limited partnership is a specific registered structure with at least one general partner (unlimited liability) and limited partners whose liability is capped. Most small investment partnerships are general partnerships.

Does an investment partnership need to register for GST?

Only if its GST turnover reaches $75,000. Interest and residential rent are input-taxed and dividends aren’t a taxable sale, so none of them count. That means a partnership holding shares or residential property often doesn’t need to register. Commercial leasing or building new homes changes that.

Who pays tax in an investment partnership?

The partners do. The partnership lodges its own tax return, but each partner pays tax on their share of the net income at their own rate. Corporate limited partnerships are the exception and are taxed like companies.

Can I charge my partners a management or performance fee?

You can agree to a bigger profit share for the managing partner in your partnership agreement. Be careful, though. Managing pooled money for others in return for a fee can look like operating a managed investment scheme, which may need registration or a licence.

What happens if a partner wants to leave?

Your partnership agreement decides. Without one, a departing partner may be able to force the partnership to dissolve and the assets to be sold. A good agreement sets notice periods, a valuation method and a right for the others to buy the exiting partner’s share.

Can a partnership own property or shares?

Yes, though title is held in the partners’ names because a partnership isn’t a separate legal entity. That’s one reason property syndicates often prefer a unit trust with a corporate trustee, which holds title in one name.

If you’ve read this far, you’re ahead of most groups, who only think about structure after the first argument. You don’t need every answer today. You need the rules in writing before the money moves, and that part takes an afternoon, not a month.

Start your Partnership Agreement today and join the 650,000+ Australian businesses that have sorted their legals with Lawpath.