Quick answer
A partnership is a business structure where two or more people or entities run a business together and share its income or losses. In a general partnership every partner has unlimited personal liability for the business's debts. The partnership has its own ABN and tax file number and lodges a partnership tax return, but it doesn't pay income tax itself: each partner pays tax on their share.
Key points
- Two or more partners share income, losses and decisions
- Partners are usually jointly and severally liable for business debts
- Partnership lodges its own return; each partner is taxed on their share
- Lenders generally need every partner to sign or guarantee the loan
Two siblings running the family farm, a pair of accountants sharing a practice, a husband and wife with a plumbing business: all very often partnerships. It’s one of the simplest ways for more than one person to own a business in Australia, and one of the most misunderstood when it comes time to borrow.
How a partnership is set up
A partnership needs at least two partners, who can be individuals, companies or trustees of trusts. There’s no registration with ASIC as there is for a company. The partnership still needs an ABN and TFN of its own, and it has to register for GST once turnover reaches $75k.
A written partnership agreement isn’t legally required, but business.gov.au recommends one, covering contributions, profit shares, decision-making and how a partner can leave. For borrowing, the clause that matters most is who can commit the partnership to debt. Without it, any partner can usually bind the others in the ordinary course of business.
There are also limited partnerships, registered with the state or territory, where at least one partner’s liability is capped at what they put in. They’re mostly used for investment vehicles rather than everyday trading businesses.
How partnerships are taxed
The partnership lodges its own return each year showing income, deductions and how the net result is split. According to the ATO, the partnership itself doesn’t pay tax on that income. Each partner includes their share on their own return and pays tax at their own rates.
For a lender, that creates a two-layer paper trail. Expect to provide the partnership return and financials and each partner’s individual return. If one partner’s return is late, the whole application can stall, so check everyone is up to date before you apply.
Why lenders want every partner on the loan
A partnership isn’t a separate legal person. When it borrows, the partners borrow, and they are usually jointly and severally liable: each can be pursued for the whole debt, not just their share. So most lenders will:
- ask all partners to sign the contract
- run a credit check on each partner
- take security from whoever owns the property being offered, even if it’s in one partner’s name alone
That’s the main practical difference from a sole trader, and a big part of why some partners move to a company structure as they grow. Our guide on company vs sole trader for borrowing covers that decision.
Example: two siblings and a header
A brother and sister run a cropping operation near Horsham as a partnership. They need $260k towards a used header before harvest. The farmland is in the brother’s name; the sister owns a house in Ballarat.
Their bank is keen, but wants both partners to sign the loan, a mortgage over the farm and personal guarantees from both. The sister is reluctant to put her home on the line for machinery she sees as a business asset. The workable compromise is equipment finance secured over the header itself, with both partners signing but no mortgage over either home. It’s a reminder that in a partnership the question isn’t only “can we borrow” but “whose assets end up behind it”.
Weighing up a similar trade-off? [Give us the outline]((/apply/) and we’ll suggest what lenders are likely to ask for.
Related terms
See personal guarantee and guarantor, plus our situation pages on business loans for partnerships and buying out a business partner.
Running a business with a partner and need funding?
Partnerships borrow successfully all the time, provided the paperwork lines up and each partner knows what they’re signing. If your bank has said yes on good terms, that’s often the best outcome. If it hasn’t, we can help you find a lender that suits how your partnership is set up. Each partner’s details fit into one brief form, roughly a minute of typing. Enquiring leaves your credit records alone, and what you send isn’t spread across the lending market. A member of our team reads it and rings to talk it over. Please list every partner and any property accurately, so our first suggestion fits.
Frequently asked questions
Can a partnership get a business loan?
Yes. Lenders lend to partnerships regularly, but because a partnership isn't a separate legal entity like a company, the loan is made to the partners. Expect every partner to sign, and for each partner's personal credit history to be checked.
What documents do lenders want from a partnership?
Typically the partnership tax returns and financial statements, each partner's individual tax return showing their share, recent business bank statements, the partnership agreement if there is one, and identification for every partner. Low doc lenders may accept statements and BAS instead of full returns.
What if one partner has bad credit?
It affects the whole application, because every partner is liable. Some lenders will still proceed if the issue is explained, paid or old, especially with property security. Being upfront about it early saves time.
What happens to a business loan when a partner leaves?
The departing partner normally stays liable until the lender releases them, which usually means refinancing or the remaining partners qualifying on their own. Check the loan terms and your partnership agreement before anyone exits.
Is a partnership the same as a joint venture?
Not quite. A joint venture is usually a project-based arrangement where parties share output rather than profits and keep their own businesses. A partnership is an ongoing business carried on in common with a view to profit.