A commercial partnership comprises two or more people who jointly carry on business with a view to making a profit.  Partnerships can be general partnerships, limited partnerships or incorporated limited partnerships.

Limited partnerships or incorporated limited partnerships in Western Australia must be registered under the Limited Partnerships Act 2016 (WA) with the Commissioner for Consumer Protection.  

General partnerships

A general commercial partnership is one in which all of the partners are equally responsible for the management of the business, and each partner has unlimited liability for the debts and obligations of the business.  It simply requires an agreement between two or more parties to enter into a legally binding business relationship. 

There is no requirement for general partnerships to be registered, however business names used by partnerships must be registered as appropriate with the Australian Securities and Investments Commission (ASIC) under the Business Names Act 2011 (Cth).

Limited partnerships

A limited partnership is one in which the liability of one or more partners, for the debts and obligations of the business, is limited.  A limited partnership comprises one or more general partners (whose liability is unlimited) and one or more limited partners. Simply put it is a business agreement between the partners and is not a legal entity in its own right.

In a limited partnership:

• the general partners manage the business and have the power to enter into binding agreements on behalf of the partnership, their liability for the debts and obligations of the limited partnership is unlimited; and
• the limited partners are passive investors who must not manage the business, their liability for its debts and obligations is limited in proportion to the amount they have agreed to contribute to the partnership.

Incorporated limited partnerships

An incorporated limited partnership (ILP) is a new form of partnership with the powers of a body corporate.  It is a specialised type of legal entity which can be established by Australian and overseas investors seeking to invest venture capital into eligible start-up businesses under the Venture Capital Act 2002 (Cth).

Venture capital is an important source of funds for start-up companies, expanding businesses and restructuring businesses. Venture capital is high risk as it provides funding to companies at difficult stages in their development where the risk of failure is greatest. Venture capital programs attempt to prevent this failure by working with the management of investee companies through the growth phase.

To register an incorporated limited partnership, it must be registered by the Australian Taxation Office (ATO) as:

• a venture capital limited partnership (VCLP); or
• an early stage venture capital limited partnership (ESVCLP); or
• an Australian venture capital fund of funds (AFOF); or
• a venture capital management partnership (VCMP); or
• be intending to seek ATO registration as any of the above.

Are there benefits of becoming an incorporated limited partnership?

Some of the benefits of registering an incorporated limited partnership (ILP) include:

• The ILP it becomes its own legal entity that is responsible for all of its debts and obligations.
• Limited partner investors in the ILP have no liability for the liabilities of the ILP, the general partner, or the conduct of the general partners beyond the capital they have contributed.
• The ILP may be able to obtain concessional tax treatment under the Commonwealth legislation.