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Starting a new partnership in New Zealand is an exciting prospect. Also, you likely already have your business idea and willing partners in hand. However, there are a few steps to take before starting a business. These include some administrative requirements and best practices, plus considering how you will distribute the ownership of your partnership. Further, you want to take some time to negotiate what should be in the partnership agreement. This article details three steps to starting a new partnership, including:

  • notifying the IRD; 
  • considering ownership questions; and 
  • thinking about the partnership agreement.

Notifying the IRD

You will need to let Inland Revenue (IRD) know if you are looking to form a partnership. Partnerships in New Zealand must have an IRD number assigned for paying the business’ income tax and GST obligations. Note that partnerships pay tax separately to the partners themselves. Partners pay tax on their income using individual GST numbers. Likewise, you must register the partnership for GST if you believe it will have a turnover of more than $60,000 per year or if you are on track to do so. 

Additionally, there are other steps to make forming a partnership easier, including getting a New Zealand Business Number. If you have already obtained one, it will speed up the process of forming your partnership. However, if you have not, you can apply for one online. 

A New Zealand Business Number will also let other businesses in New Zealand more easily identify your partnership and find helpful information about you. 

Considering the Ownership of Your Partnership

From an early planning stage, you should consider how you will split the ownership of your partnership. While partners typically have an equal share in a new partnership, this is not always the case. Hence, separating different shares from different partners can be important for reflecting varied commitments of time and resources. 

Focusing on the commercial side of your new venture is natural. However, it is equally important to have tough discussions about how you and your partners envisage the partnership operating into the future. The ownership question is central to this. It is a serious problem if one partner expects an equal share, whereas others assume that the shares will be unequal to reflect different commitments. Having that discussion early on is vital to ensure that all of the partners are on the same page. You should then commit this understanding to paper in a partnership agreement.

Finalising a Partnership Agreement

Having a robust, comprehensive and clear partnership agreement is incredibly important for the long-term success of your partnership. This is partly because your partnership will almost certainly have difficulties and stresses in the future. Launching a new business is not easy, and a partnership structure increases the trust and confidence you must have in the other partners. You are all legally bound together in the new venture, after all. Therefore, a good partnership agreement will help ensure your partnership is a success. Likewise, it should set out the rules all of the partners are comfortable with. 

Additionally, there are some other matters you should consider including in your partnership agreement. However, keep in mind that your agreement should reflect the unique nature of your partnership. Nonetheless, key areas to include are:

  • the roles and responsibilities of each partner; 
  • the resources or other commitments each partner is making;
  • how you will divide ownership of the partnership;
  • what happens if a partner dies or wants to leave;
  • how you will sell the partnership in the future; 
  • what property is included in the business;
  • how each party will receive payment; and
  • a disputes resolution clause to resolve disputes that might arise.

In negotiation, brainstorm and include any other details that you or other partners want to iron out in writing.

Further, ensure that all partners are genuinely on board with the terms of the partnership agreement. Likewise, understand that it is not a legal formality. Getting legal advice on drafting a partnership agreement can often be helpful.

Key Takeaways

Starting a new partnership in New Zealand is relatively simple compared to other jurisdictions. Still, it is essential to get the details right to make your partnership a long-term success. This includes providing the right information to the IRD and thinking about your tax obligations. In addition, being on the same page regarding the ownership of the partnership is crucial. Furthermore, setting out all key details in a partnership agreement reduces confusion as to each partner’s role. 

For more information about starting a new partnership, contact LegalVision’s business lawyers on 0800 005 570 or complete the form on this page.

Frequently Asked Questions

Do partnerships need their own IRD numbers?

Yes, every partnership in New Zealand must be registered with the IRD and must have an IRD number.

Do partners have to have an equal share of a new partnership?

No, they do not. Importantly, if partners do not have equal shares, it is imperative to set this out in the partnership agreement clearly. 

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