Value in partnership limits

Choosing a business structure can be very confusing. Most people just go with the default "company" structure because they don't really understand their options.

A limited partnership is permitted under the Partnership Act and it is a unique structure in that it overcomes the difficulty with partnerships having unlimited liability between the partners and the partners' responsibility for the actions of others in the partnership.

Here's an example. Say you own a restaurant with four other partners and one of the partners commits to buying a wine cellar for many thousands of dollars without anyone else's consent. The wine is delivered and the other partners are furious with the decision and want it sent back. If the wine merchant deems the goods to be sold and doesn't accept the return of the wine, all the partners are jointly and severally liable for the debt. That is, of course, unless you have a limited partnership structure.

A limited partnership is registered similarly to a corporation but it limits the liability of partners to the extent of the funds contributed by the partners. In other words if you invest $100,000, you do so knowing that will be the only investment you can lose. The structure effectively caps your exposure to the world.

From a tax point of view, a limited partnership is good in that profits and losses of the partnership are the responsibility of the partners, which means that each one takes the partnership income or loss according to their unique tax position. A partnership can distribute taxable losses, and if the business is in its set-up phase or incurring losses for business expansion, these losses can be offset against the individual partner's income. In a company or trust, tax losses remain with the company or trust.

My business is coming up to a busy period and I need to increase staff levels, at least temporarily. I am considering taking on either casual employees or sub-contractors, but am unsure of the best option. Could you advise me on factors to consider for each?

From a legal perspective, there are many occupation awards which cover minimum payments for casual employees. So your starting point should be to look at the award for your particular occupation and this will provide you with the minimum cost.

Sub-contracting can be very difficult in that the law does not make it easy to hire and categorise sub-contractors when they are for all intents and purposes employees. If you consider all of the effort various parliaments have put into regulating the rights of employees, it's not easy to categorise someone as a sub-contractor.

Taxation, superannuation, payroll tax and workers' compensation legislation cuts through all layers of agreement and on many occasions has deemed sub-contractors to in fact be employees. In common law, you may think that you have a sub-contractor but if there was an accident or death, you'd have real difficulty proving the person wasn't an employee. If you're looking to sub-contractors because you don't want the liability or headaches associated with short-term employees, seriously consider a labour hire firm. It can be responsible for insuring compliance with myriad legislation covering employees.

Apart from legal considerations and putting all the expenses and logistics aside, if you're looking for general labour that requires a minimal skill set, I'd say your best option is to go for casual workers. If you need a job to be completed that's more skill-oriented and will reflect on your business's reputation as a product or service provider, I'd suggest getting some quality sub-contractors on board.

Mark Bouris is executive chairman of the wealth management company Yellow Brick Road. His advice here is intended as guidance only.

If you have a question, email it to Larissa Ham at lham@theage.com.au.