Thinking about starting a business with a partner? Whether it’s with a friend, family member, or business associate, a partnership is one of the most straightforward ways to start and run a business together in South Africa. But before you dive in, it’s essential to understand what a partnership is, how it works, and what types are available.
So, What Exactly Is a Partnership?
A partnership (also known as an unincorporated joint venture) is a legal agreement where two or more individuals agree to run a business together. Unlike a company, a partnership is not a separate legal entity, which means it doesn’t pay tax itself. Instead, each partner is taxed individually based on their share of the partnership's profits.
Partners can contribute money, property, labour, or skills, and they share in the profits and losses of the business. It's similar to a sole proprietorship, but with more than one owner.
Types of Partnerships
There are three main types of partnerships, and each one works a little differently depending on how involved each partner is and what kind of risk they’re willing to take:
This is the most common structure. All partners are equally liable for the debts and responsibilities of the business. That means if the partnership owes money, any partner can be held responsible.
In this arrangement, one or more partners are not publicly associated with the business and don’t actively manage it. However, they are still entitled to a share of the profits and may be liable to the other partners for their share of obligations.
This is similar to having an investor. The partner contributes financially but doesn’t get involved in managing the business. Their liability is limited to the amount they invested—just like a shareholder in a company.
Registration process and Tax:
Partnerships follow the same rules as a sole proprietor except that the expenses of the business and the revenue are split between the partners. A partnership is not a legal entity for tax purposes, the individual partners pay tax on their share of the partnership's profit. The Partnership itself cannot submit an Income Tax Return, however, the partners individually will submit a tax return with their share of the profit.
For example, if your partnership makes R500 000 in profit and there are two partners with an equal 50/50 share, each partner will declare R250 000 on their individual SARS tax return.
A partnership also doesn’t need to register as a separate legal entity like a private company (Pty) Ltd, but it may need to register for tax, VAT, or UIF, depending on the size and nature of the business.
Do You Need a Written Agreement?
In South Africa, a partnership is not regarded as a legal entity. Unlike trusts, companies, and close corporations, which are considered ‘legal or juristic persons’, a partnership is not. A Partnership is entered into simply by signing a contract/ agreement that is specifically drafted for the Partnership.
Legally, a partnership in South Africa can exist through an oral agreement, but having a written partnership agreement is highly recommended. It protects everyone by clearly outlining roles, contributions, profit-sharing, decision-making processes, and what happens if someone wants to leave the partnership.
The pro’s / advantages of a Partnership:
The con’s / disadvantages of a Partnership:
Final Thoughts
Starting a business with a partner can be a great way to combine strengths, share responsibilities, and grow something bigger than you could alone. But like any business relationship, a partnership works best when everything is clear and agreed upon upfront.
Make sure you have:
-A solid partnership agreement,
-Clear communication,
-A good understanding of your legal and tax responsibilities.
