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  • #981331
    newlife
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    Hello :)

    My wife and I are traveling Australia and am about to head to Perth for work. I have a friend in Perth who operates as a sub-contractor within the building industry. I want to work for him, but like so many subbies he puts all his efforts into his work and not much effort into his business records (he is improving), and ATO requirements. (He often does cash jobs, and currently pays an “employee” cash in hand).

    When talking on how working for him would look for me, his offer is cash in hand or for me to get my own ABN and sub-contract to him. I’m not willing to do either, as I wouldn’t fit the ATO’s definition of a sub-contractor.

    I am tossing up the idea of a Limited Partnership with him.

    I want to work for him for approx 3 months in order for his business to gain more capital for the purpose of expansion. I also will be “gauging” if he is ready to run his business more legally, with the hope that one day I could provide capital for even more expansion, and become a more traditional business partner.

    Is the idea of a limited partnership to complicated for what maybe only 3 months work?

    Is the structure of a limited partnership one that suits a relationship that is to begin with essentially an “employer-employee” relationship?

    To give you more background on why I would consider this, I have mentored him in personal and life skills. Over a period of 10 yrs he has navigated a minefield of personal issues and his current business is a credit to his determination to succeed, albeit with the above mentioned short cuts.

    I have contemplated being a silent partner with him in the past. I have considered providing him with capital etc, but have decided against it because he really needed to learn his own lessons in building a business.

    I hope I haven’t given too many details :)

    Thanks for your time,

    Jeffrey :)

    #1129581
    PRO
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    Limited partnerships are used rarely in Australia, but are entirely possible.

    A partnership with anyone who is not ATO compliant to me seems really risky, particularly if you are personally the partner.

    You need to get specific advice, preferably build a relationship with a commercial lawyer on that side of the country

    D

    #1129582
    Breevree73
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    A partnership by definition is joint and severally liable for the debts of the business.

    If your partner is doing shonky stuff, I’d be very hesitant to enter into that type of business relationship with him – if ATO catches up with him, and he doesn’t pay up, they can come after you.

    The process to get your own ABN is very simple – it might be better for you to do that, and consult to him, instead of sub-contracting.

    Cheers

    Bree

    #1129583
    newlife
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    Thanks,

    I had looked into the structure of a limited partnership because my understanding was the general partner carried all the responsibilities.

    Maybe this is not the case if the general partner is breaking the law?

    Jeffrey

    #1129584
    CindyK
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    Hi Jeffery,

    I would strongly suggest (and by this I mean around 1 million %) that you find a qualified Tax Agent Accountant to discuss the situation with. Here are the reasons:

      The different company and business structures are complex and varied. Setting up the wrong structure does damage not only to the business but to the Directors personally.
      If your friend is currently a sole-trader, you are completely changing the structure of his operation. That is not always a good thing for a business, it is very much suited to the person, their way of life etc. It will impact his earnings, accounting around that. It will also impact the legal status of the business and it will then have legal responsibilities it did not before.
      The Building and Construction Industry, in the eyes of the ATO, is being heavily re-vamped at the moment. We are in the beginning phase of a much stricter set of compliance rules looking at weeding out contractors who don’t declare earnings (ie. cash economy). These began on 1 July 2012 and will affect your friend’s business from this year. Before getting involved you need to find out the level of compliance now required and your own liability.
      Lastly, going into business with friends and family can be a minefield. It can work beautifully or turn true friendship into a burnt dinner. And generally their isn’t alot to predict the outcome. You haven’t indicated if he is willing or what type of written agreement will cover all the bits and pieces. If he began building it, is he ready to see someone else take it over? Are you willing to take a back seat to his decisions if it’s his business?

    The last is a personal issue, but the legal liability in regard to the business and its taxation compliance (which at this point sounds non-compliant) should only be assessed by a qualified professional and in this case, with the super new legislation, will only be a Tax Agent Accountant.

    Ideally if you could get all those ducks in a row, it sounds like it might be the perfect partnership.

    #1129585
    newlife
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    Thanks for your time Cindy,

    A trip to an accountant is the next step for me. Your post has brought to light something I hadn’t spent much time in thought about, and that is what it would look like for my friend transitioning from a sole trader to a partnership.

    We have only spoken casually about partnerships in the past because both of us weren’t in a position to make that happen. So, as you said, some of the ducks seem to be lining up, so it is now time to actually get answers to all our questions.

    My next goal will be to convince my mate to do the right thing, so being armed with the knowledge the ATO is focusing on his industry will help.

    Cheers,

    Jeffrey

    #1129586
    PRO
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    Advice is good except any of it the refers to talking to an accountant about legal structures, legal issues and anything else of a legal nature that isnt purely of a tax or financial nature. Accountants are not legally allowed to advice about such things, their insurance will not cover it, if they do provide information such information they are breaking the law. Legal practice is highly regulated and there are stiff penalties.

    CindyK, post: 146957 wrote:
    Hi Jeffery,

    I would strongly suggest (and by this I mean around 1 million %) that you find a qualified Tax Agent Accountant to discuss the situation with. Here are the reasons:

      The different company and business structures are complex and varied. Setting up the wrong structure does damage not only to the business but to the Directors personally.
      If your friend is currently a sole-trader, you are completely changing the structure of his operation. That is not always a good thing for a business, it is very much suited to the person, their way of life etc. It will impact his earnings, accounting around that. It will also impact the legal status of the business and it will then have legal responsibilities it did not before.
      The Building and Construction Industry, in the eyes of the ATO, is being heavily re-vamped at the moment. We are in the beginning phase of a much stricter set of compliance rules looking at weeding out contractors who don’t declare earnings (ie. cash economy). These began on 1 July 2012 and will affect your friend’s business from this year. Before getting involved you need to find out the level of compliance now required and your own liability.
      Lastly, going into business with friends and family can be a minefield. It can work beautifully or turn true friendship into a burnt dinner. And generally their isn’t alot to predict the outcome. You haven’t indicated if he is willing or what type of written agreement will cover all the bits and pieces. If he began building it, is he ready to see someone else take it over? Are you willing to take a back seat to his decisions if it’s his business?

    The last is a personal issue, but the legal liability in regard to the business and its taxation compliance (which at this point sounds non-compliant) should only be assessed by a qualified professional and in this case, with the super new legislation, will only be a Tax Agent Accountant.

    Ideally if you could get all those ducks in a row, it sounds like it might be the perfect partnership.

    #1129587
    CindyK
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    Hi Darryl,

    My apologies if usually an Accountant is not qualified for that advice. I know a number of Accountant’s who do provide advice related to company structure, set up and legalities, but perhaps the services of the firm include a solicitor.

    I also understood that this was acceptable part of their work as they often setup and administer a number of different business entities and structures. The majority of our clients have had all their setup organised and completed through their Accountant.

    In addition to an Accountant, what sort of professional do you recommend Jeffery seek out?

    #1129588
    PRO
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    Hi Cindy

    No need to apologise.

    Accountants have been known to do that.

    However, regardless of whether they are CPA, Chartered or otherwise
    -they are committing an offence under the applicable legal profession act
    -they are not allowed to charge you to provide such advice, if you have been charged you should ask for a refund
    -their insurer will not cover them, which means you have to go after them individually. Accountants providing legal advice is professional negligence.

    D

    #1129589
    akagrp
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    Hello

    Total agree with all above comments, if this potential partner is how you describe (from my professional experience they never change) I would keep my distance

    Also with the ATO new contractor reporting as of 1/7/2012 he is likely to be on ATO radar come the end of this financial year

    #1129590
    Marc D
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    PRO, post: 147465 wrote:
    Hi Cindy

    No need to apologise.

    Accountants have been known to do that.

    However, regardless of whether they are CPA, Chartered or otherwise
    -they are committing an offence under the applicable legal profession act
    -they are not allowed to charge you to provide such advice, if you have been charged you should ask for a refund
    -their insurer will not cover them, which means you have to go after them individually. Accountants providing legal advice is professional negligence.

    D

    Hi Pro,

    I feel I must reply as the information you are providing appears to be inaccurate and self serving and may be read by a member of the general public as suggesting that it is illegal for an accountant to provide advice on business structures, that doing so is an offence and they are not insured to do so.This is simply not true.

    The provision of legal practice is restricted and is undefined in legislation with many arguments as to what constitutes legal practice. Firstly, the interpretation varies depending on which state has jurisdiction as the legal professional acts are state based so that the blanket statements you have made in fact have different interpretations depending on jurisdiction. For example, in South Australia, The Legal Practitioners Act 1981 S21 restricts the “practise (the) profession of law” (not tax advice and not even tax practice) as:

    “a person practises the profession of the law, if acting for fee or reward on behalf
    of some other person he or she—
    (a) prepares any will or other testamentary instrument; or
    (b) prepares an instrument creating, transferring, assigning, modifying or
    extinguishing any estate or interest in real or personal property; or
    (c) prepares any instrument relating to the formation of a body corporate, any
    amendment to the memorandum or articles of association, rules or regulations
    of a body corporate, any prospectus or take-over scheme relating to a body
    corporate, or any instrument affecting the rights of shareholders or debenture
    holders in a body corporate or any scheme of arrangement in respect of a
    body corporate; or
    (d) prepares any other instrument creating, transferring, assigning, modifying or
    extinguishing any right, power or liability at law or in equity; or
    (e) represents any party to proceedings in a court or tribunal.

    Sitting with my client discussing business structures alternatives, tax strategies, GST compliance issues, and the like does not, in my opinion, come anywhere near the coverage of Act. When we decide a course of direction, a registered legal practitioner is then engaged to draw up the necessary instruments.

    The discussion where other states are concerned may be more ambiguous as the term is legal practice which is not defined but interpreted (widely) in common law and administrative tribunals. This still supports my assertion at the beginning of my post that the information you have provided above is incorrect and may be misleading to the ordinary general public members who come to this forum for information

    #1129591
    PRO
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    Marc

    The information I am providing is neither inaccurate nor self serving it is. I have been involved in litigation where exactly that is the case. Solicitors stuff up too, but if they advise on legal matters, their insurance covers you. In litigation, as soon as we make a professional a party to the case, the professional insurer will closely examine the professional’s action to see if they can find an out.

    The quote of mine you did is taken out of context of the previous response which was
    “talking to an accountant about legal structures, legal issues and anything else of a legal nature that isn’t purely of a tax or financial nature”

    The advice recommendation which I originally responded to included several references to legal or asset protection. Both of which come under the ambit of legal professional regulation acts

    I agree with you about
    ” Sitting with my client discussing business structures alternatives, tax strategies, GST compliance issues, and the like” does not constitute legal advice. That is the financial and taxation advice that I stated in my original response.

    However, an accountant advising on asset protection immediately over steps the boundaries.

    Unfortunately Accounting is not a regulated profession (maybe it is in SA). There are no restrictions on the use of the title “Accountant”, hence the need for tax agent registration and the CA and CPA programs.

    Ps, SA has completely different legislation regarding this to the rest of the country.

    Marc D, post: 147516 wrote:
    Hi Pro,

    I feel I must reply as the information you are providing appears to be inaccurate and self serving and may be read by a member of the general public as suggesting that it is illegal for an accountant to provide advice on business structures, that doing so is an offence and they are not insured to do so.This is simply not true.

    The provision of legal practice is restricted and is undefined in legislation with many arguments as to what constitutes legal practice. Firstly, the interpretation varies depending on which state has jurisdiction as the legal professional acts are state based so that the blanket statements you have made in fact have different interpretations depending on jurisdiction. For example, in South Australia, The Legal Practitioners Act 1981 S21 restricts the “practise (the) profession of law” (not tax advice and not even tax practice) as:

    “a person practises the profession of the law, if acting for fee or reward on behalf
    of some other person he or she—
    (a) prepares any will or other testamentary instrument; or
    (b) prepares an instrument creating, transferring, assigning, modifying or
    extinguishing any estate or interest in real or personal property; or
    (c) prepares any instrument relating to the formation of a body corporate, any
    amendment to the memorandum or articles of association, rules or regulations
    of a body corporate, any prospectus or take-over scheme relating to a body
    corporate, or any instrument affecting the rights of shareholders or debenture
    holders in a body corporate or any scheme of arrangement in respect of a
    body corporate; or
    (d) prepares any other instrument creating, transferring, assigning, modifying or
    extinguishing any right, power or liability at law or in equity; or
    (e) represents any party to proceedings in a court or tribunal.

    Sitting with my client discussing business structures alternatives, tax strategies, GST compliance issues, and the like does not, in my opinion, come anywhere near the coverage of Act. When we decide a course of direction, a registered legal practitioner is then engaged to draw up the necessary instruments.

    The discussion where other states are concerned may be more ambiguous as the term is legal practice which is not defined but interpreted (widely) in common law and administrative tribunals. This still supports my assertion at the beginning of my post that the information you have provided above is incorrect and may be misleading to the ordinary general public members who come to this forum for information

    #1129592
    newlife
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    Righteo :)

    So before I even go to an accountant or lawyer I need clarification on one thing that will help me decide if the notion of working with my mate in a professional way is within the realms of possibility.

    My understanding of a partnership that may be suitable for my case comes from this website: (http://www.commerce.wa.gov.au)

    What is a limited partnership?

    Under s4 of the Act, a limited partnership is one formed by up to 20 persons, at least one of whom must be a general partner and at least one a limited partner. Within those parameters there are no further restrictions on the number of general or limited partners who may comprise the firm.

    The general partner(s) is liable for all of the debts and obligations of the partnership or firm; the limited partner(s) contributes a defined amount of capital to the partnership, but is not otherwise liable for its debts or obligations. Limited partners might perhaps be thought of as “silent partners” in that by s6 of the Act they may not take any part in the management of the partnership business; if they do, they become liable – for that period of management at least – for the debts and obligations of the firm in the same way as a general partner.

    Similarly, if a limited partnership is formed and not registered in accordance with the Act, the partnership is deemed to be a general partnership and every limited partner deemed to be a general partner (s5).

    Apart from the Act, the Partnership Act (1895) and the rules of equity and common law also apply to the limited partnership, unless inconsistent with the Act.

    So my questions are:

    If I became a limited/silent partner and the business goes belly up because of poor management or GFC or the bubonic plague or something I bear no responsibilities?

    If I became a limited/silent partner and the business goes belly up because of breaking the taxation laws, I bear some/equal responsibilities?

    Thanks for your time,

    Jeffrey

    #1129593
    PRO
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    newlife, post: 147664 wrote:
    Righteo :)

    So before I even go to an accountant or lawyer I need clarification on one thing that will help me decide if the notion of working with my mate in a professional way is within the realms of possibility.

    My understanding of a partnership that may be suitable for my case comes from this website: (http://www.commerce.wa.gov.au)

    What is a limited partnership?

    Under s4 of the Act, a limited partnership is one formed by up to 20 persons, at least one of whom must be a general partner and at least one a limited partner. Within those parameters there are no further restrictions on the number of general or limited partners who may comprise the firm.

    The general partner(s) is liable for all of the debts and obligations of the partnership or firm; the limited partner(s) contributes a defined amount of capital to the partnership, but is not otherwise liable for its debts or obligations. Limited partners might perhaps be thought of as “silent partners” in that by s6 of the Act they may not take any part in the management of the partnership business; if they do, they become liable – for that period of management at least – for the debts and obligations of the firm in the same way as a general partner.

    Similarly, if a limited partnership is formed and not registered in accordance with the Act, the partnership is deemed to be a general partnership and every limited partner deemed to be a general partner (s5).

    Apart from the Act, the Partnership Act (1895) and the rules of equity and common law also apply to the limited partnership, unless inconsistent with the Act.

    So my questions are:

    If I became a limited/silent partner and the business goes belly up because of poor management or GFC or the bubonic plague or something I bear no responsibilities?

    If I became a limited/silent partner and the business goes belly up because of breaking the taxation laws, I bear some/equal responsibilities?

    Thanks for your time,

    Jeffrey

    Hi Jeffrey

    Am not familiar with WA so haven’t seen cases to find out what went wrong and how someone got around a LLP and therefore not comfortable commenting.

    Sorry and hopefully there is a WA based lawyer lurking somewhere on here.

    Darryl

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