partnerships

Hi Shelly and welcome to the forum.

If you are looking at buying something together, my preference would be to set up a unit trust which would purchase the property. You can allocate the shares in any proportion – you basically ‘buy’ them, a lot like a company.

You can also set up your agreements as to what happens if one wants out etc. etc. In all things, talk to your advisors, and outlay any concerns you have. Now, while you are friends, is the best time to come up with all the what if scenarios, especially the one where you suddenly hate each other.

You also need to set out what happens if something breaks – do you repair/replace/get three quotes/take the first etc. etc. How will it be paid? I’ve seen this sort of situation bickered about between the partners, while the poor tenant is sitting at home with no hot water.[]

Cheers
Mel

Just to take Elysiums point a step further.

If you borrow jointly then you are individually liable for the whole debt. If two people can’t meet payments – guess who has to?

ie if you have a third share in a property and it’s mortgage then you have a 100% liability to the debt.

This can really affect subsequent lending power.

Cheers,

Simon Macks
Mortgage Broker
[email protected]
0425 228 985

Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.

Gday Michelle, Depends on lots of things; how many properties, common objectives, how many people, individual profiles, MoU drafted, etc. Sometimes its better to invest in some good legal advice…no, I’m NOT one! RU in Sydney? Jon

Hi Michael,

Thanks for your input.

I’m simply stating the basic position.

You may be right technically, in relation to limited partnership structures, but technicalities rarely work in real life. The circumstance in which you’d be arguing that technicality will more than likely be in the courts. I’d rather take a different path and avoid that altogether.

As I said, it’s simply an issue of risk tolerance. If you’re going to have a legal agreement prepared anyway, why use a partnership when you can use better structures (from a liability limitation perspective), like a joint venture, unit trust or company structure?

Cheers
Elysium-M

Hi Michael,

Thanks for your response.

I agree that having a good legal agreement helps avoid problems – that was the whole thrust of my first post. However, I (respectfully) don’t see how that supports your point regarding partnership liability.

The terms “joint venture” and “partnership” have fundamentally different legal natures. Many people use the term “partnership” in a loose fashion, to encompass the different legal structures that could be used. But that is the same as calling apples, oranges and mangoes “fruit”. Sure, use the term “fruit” in general discussion, but lack of precision leads to confusion, especially when you’re trying to explain what’s specifically good and bad about mangoes, which has nothing to do with apples or oranges.

Similarly, I was referring specifically to a legal “partnership” in my first post, for the purpose of making a precise point.

You could prepare an agreement to take all the “bad” things out of a partnership, but then it would no longer be a partnership, but perhaps rather a joint venture? Add transferable rights, and you might as well call it a unit trust?

Many structures comprising multiple investors are called “syndicates”. But what is a “syndicate”? When you look closely at it, it’s usually a unit trust type of structure (which is the case for many managed investment schemes, even if they don’t call the interests in the scheme “units”), or a company structure (where each investor owns shares in the company which carries on the particular project).

I don’t intend to discount your experience, and in fact have no right to do so, since I don’t know you. But I maintain my view that a partnership structure, as opposed to a unit trust, joint venture or corporate structure, is fraught with risks, especially for first timers. An agreement costs pretty much the same to prepare anyway, whether it’s a partnership agreement, joint venture agreement, unitholders’ agreement or shareholders’ agreement, so if you’re going to all that trouble, why bother with a partnership, when you know that the risk (of a partner binding the others) can be simply avoided by using one of the other structures?

I also disagree with your point regarding the “entity”. I agree that the “entity” is separate from the commercial structure. However, the “entity” can either be a person or a company. The vehicle, or structure, dictates relationships between the entities involved. A trust is merely a structure, as is the case with a joint venture. In the case of a company, the entity is the structure, and the two are inextricably intertwined. Of course, the shares in that company can either be held by people, companies or through a trust. And the trustee of a trust can be either a person or a company.

I think that being more precise in using terminology helps avoid confusion.

In any event, I think we (or more precisely, I!) may be splitting hairs for the purpose of this forum. Sorry for boring the rest of you forumites.

Cheers *yawn*
Elysium-M

My first few purchases with friends tied us up greatly. Three of us purchased together, but as previously mentioned when it came to looking for more funds the banks treated us as though each of us had borrowed the total amount individually, and not as one third each.