Starting a partnership involves establishing joint ownership of a business and pooling together skills and resources among you and one or more partners. As a result, each partner shares both the profits and losses of the business.
If you are contemplating the idea of starting a partnership, or have already taken the first steps but are uncertain about the subsequent actions, this resource will provide you with useful insights and guidance.
Starting a partnership is a common practice in certain professions like law, accountancy, and farming. It involves signing a partnership agreement among the partners, which makes the process relatively straightforward.
To determine if a partnership is an appropriate structure for your business, utilise the Choose Your Business Structure tool
Inform Inland Revenue of your partnership’s establishment and acquire an IRD number for paying income tax and GST. A partnership and its partners pay taxes differently; each partner pays taxes on their income using their own IRD numbers.
Register the partnership for GST if its turnover exceeds $60,000 annually.
Obtain a New Zealand Business Number (NZBN), a unique identifier that any New Zealand business can now have, to hasten your interactions with the government, suppliers, customers, and other businesses.
Before commencing, ensure that you have a clear understanding of why you wish to establish a partnership. Utilise these suggestions and tools to test your business concept and determine if it is your best decision.
Get an NZBN — New Zealand Business Number
Unless otherwise specified in the partnership agreement, partners typically have an equal share in the partnership.
Key questions for your business idea before starting
10-step guide to starting a business
Partnerships, like any relationship, can experience strains and difficulties. Once you enter into a partnership, you are legally bound to your fellow partners. To ensure a smooth operation of the business, it is advisable to establish a partnership agreement that outlines the guidelines that all partners must adhere to.
A partnership agreement should cover important aspects such as:
- the amount each partner contributes to the business
- the assets that are part of the business (e.g., intellectual property, client lists, premises)
- how partners will receive their income
- the day-to-day responsibilities of each partner
- dispute resolution methods
- protocols for partner departure due to death or resignation
- procedures for selling the business.
Crafting a partnership agreement can be a complex process. As such, it’s recommended that you seek legal advice when creating or modifying your partnership agreement.
It is crucial to consider intellectual property (IP) early on, which comprises your company name, logos, and trademarks. By securing your IP, such as by creating a trademark for your brand or company name, you are protecting the resources, time, and money invested in your business. IP protection is a critical aspect that will remain relevant throughout your business’s lifespan. Therefore, it is vital to comprehend what IP entails and its significance.
Simple steps to protect your IP
Initially, your business may comprise only partners working together. However, as it grows, you might consider hiring employees to expand its reach. In such a scenario, it becomes imperative to register as an employer with Inland Revenue.
As an employer, you’ll have obligations towards the government, such as managing ACC and tax, and towards your employees, such as ensuring their health and safety and legal employment agreements. To help you with every step of being an employer, refer to the provided sources below for more information.
Registering with government agencies
In order to detect and prevent money laundering and the financing of terrorism, you may be required to adhere to certain regulations if you are engaged in any of the following activities:
- Managing money or assets on behalf of clients
- Providing trust or company services
- Selling real estate
- Providing conveyancing services
- Handling large amounts of cash
These regulations have an impact on the types of records you must maintain and the way you ID your customers.
Law change: Anti-money laundering
It is common for accountants or lawyers to request to verify your identification to comply with anti-money laundering regulations.
Managing your partnership’s finances can be a complex task, with many aspects to consider and keep track of. Prior to launching your business, it’s crucial to explore the various methods for managing your finances, such as online accounting software or hiring a bookkeeper and accountant. Many online accounting software programs offer free trials, while some bookkeepers and accountants may provide consultation to assist you in determining whether their services would be beneficial for your business.
In a partnership, profits, losses, responsibilities, and debts are divided among the partners in accordance with the terms outlined in the partnership agreement.
In a general partnership, the entity itself is not subject to income tax. Instead, the partnership’s income is distributed among the partners, who are responsible for paying taxes on their share of the profits using their own IRD numbers.
The amount of tax each partner owes is determined by their ownership percentage, or shareholding, in the partnership. Those with a larger shareholding will receive a higher income and subsequently pay more tax.
A partnership must have its own unique IRD number and file an annual tax return (IR7).
If specified in the partnership agreement, partners may receive a salary or hourly wage and have PAYE deductions taken out of their earnings as if they were an employee. In this case, the partner may claim the PAYE as an expense on their tax return.
In a general partnership, business expenses are claimed by the partnership rather than individual partners.
Tax and partnerships — Inland Revenue
It’s essential to maintain precise and comprehensive work records for a minimum of seven years. These records should include banking information, and evidence of income, which encompasses cash payments, expenses, and cashbooks.
Each partner is allowed to withdraw funds from the business profits for personal use, akin to a sole trader. However, it is essential to keep a record of all money withdrawn from any work accounts for personal living expenses. Within the partnership agreement, you can opt to impose restrictions on how partners can withdraw funds.
Starting a partnership guarantees that each partner is eligible for ACC personal injury coverage from day one of the partnership. Payment for this cover is not required until the submission of the initial tax return. The levy charged will be determined based on the partner’s role within the partnership. Consequently, partners engaged in varying activities, such as farming or bookkeeping, may incur different levies.
ACC if you’re in a partnership — ACC
A partnership may include sleeping partners who invest in the business but do not partake in the daily management of the business.
A limited partnership is a unique form of partnership that exhibits similarities to both general partnerships and companies. It is comprised of limited partners who are accountable for debts equivalent to their invested amount.
To obtain further information on limited partnerships, please refer to the Companies Office website.
Registering a limited partnership — Companies Office
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