Being in a partnership means that you and at least one other person share ownership of a business, its resources and each other’s skills. In return, each partner shares the business profits and losses.
If you want to start a partnership or you’ve already done it but aren’t sure what else is involved, here’s where you can find tips and information to help.
Partnerships are businesses most common in certain professions, eg law, accountancy and farming. They’re relatively easy to start. You don’t need to formally register a new partnership — they are established with a partnership agreement between the partners.
You need to tell Inland Revenue you’ve become a partnership. Partnerships must have an IRD number for paying the business’ income tax and GST. A partnership and its partners pay tax differently. Each partner pays tax on their income using their own individual IRD numbers.
You will need to register it for GST if you earn over $60,000 a year.
You can also get a New Zealand Business Number (NZBN), a unique identifier, which any business in New Zealand can now have. Using it will speed up your interactions with government, suppliers and customers and other businesses.
Before you start, make sure you have a clear idea of why you’re starting a partnership. Use our tips and tools to test your idea for the business and see if it’s the right decision for you.
Get a NZBN (external link) — NZBN
Partners usually have an equal share in a partnership, unless their partnership agreement states otherwise.
Like any relationship, partnerships can have their stresses and strains. Entering a partnership legally binds you to your other partners. It’s a good idea to have a partnership agreement — though you don’t have to — as it makes sense to set out the rules all partners will agree to follow for the business.
Things to put in a partnership agreement include:
Partnership agreements can be complicated documents, so you should think about getting a lawyer to help you.
It’s never too early to think about intellectual property (IP), which includes your logos, trade marks and inventions. When you protect IP you’re safeguarding the time, money and effort you put into a business. IP will be important throughout your business’ lifespan. So make sure you understand what it is and why it’s important.
You may start with just partners working in the business. But you’ll probably want to hire people once your business begins to grow. You can hire staff, but you must be registered as an employer with Inland Revenue.
A business with staff has obligations to government, eg handling ACC and tax, and to its employees, eg health and safety and legal employment agreements. This website has tips, tools and information to help you with every step of being an employer.
There’s a lot to get your head around and keep track of with your partnership’s finances. If you’re not confident about looking after your books, think about getting online accounting software and/or a bookkeeper or accountant to help, ideally before you start.
Partners share all the business’ profits and losses, responsibilities and debts according to their partnership agreement.
A general partnership doesn’t pay income tax, it distributes the partnership’s income to the partners who pay tax under their own IRD numbers.
Each partner pays tax according to how much of the partnership they own — their shareholding. The bigger the shareholding, the more income they’ll get and pay tax on.
A partnership must have its own IRD number, and file its own tax return (IR7) every year.
Partners can take a salary or an hourly wage and have PAYE deducted from their pay like an employee — if this is stated in the partnership agreement. If PAYE is deducted from the partner’s salary or wage, they can claim the PAYE as an expense in their tax return.
General partnerships — rather than individual partners — claim any expenses the business incurs. Test your knowledge of expenses you can and can’t claim by taking our quiz. [LINK]
Tax and partnerships (external link) — Inland Revenue
Paying tax as a partnership (external link) — Inland Revenue
You must keep accurate and complete work records for at least seven years. Include banking information, proof of your income — including cash income — expenses and cashbooks.
Each partner can draw funds from business profits, as they need them for personal use, just like a sole trader. But make sure you keep a record of money taken from any work accounts for your living expenses. In your partnership agreement, you might decide to restrict how partners can withdraw funds.
Your first year in business (external link) — Inland Revenue
This is a type of partnership that shares similarities with both general partnerships and companies. A limited partnership has limited partners, who are responsible for debts up to the amount they’ve invested in it.
You can find out more about limited partnerships on the Companies Office website.
Registering a limited partnership (external link) — Companies Office