What is a partnership?
- By Book Keeping Pros
- Sources checked 16 Oct 2026
Definition
A partnership is a business structure made up of people who go into business together and share in its income or losses. In the books, each partner usually has their own capital and drawings accounts, so the records show what each person has put in, taken out and earned from the business.
What sets a partnership apart in the books is that the owners' side is kept partner by partner. Each partner's contributions, share of the profit and personal withdrawals are recorded against that partner by name, so the records show where each person stands at any point, not only the total for the business.
The books divide profit or loss in the shares the partners have agreed, which may or may not match each partner's share of ownership. At the end of the year the result is divided in the agreed shares and added to, or taken from, each partner's balance. Some partnerships keep a capital account for the money each partner has invested and a separate current account for profit shares and drawings. Which layout suits the business is a question for your accountant.
When a partner joins or leaves, or the partnership ends, each partner's balance in the books is one of the first figures needed, so it is worth keeping it current rather than rebuilding it later.
In Australia
business.gov.au describes a partnership as people who run a business together and share in its income or losses, and says that partnerships come under the partnership law of each state and territory.
On liability, it says that in a general partnership, which it calls the most common type, all the partners share responsibility for managing the business and each has unlimited liability for the partnership's debts and obligations. In a limited partnership, it says general partners manage the business with unlimited liability, while limited partners are passive investors who stay out of day-to-day management and whose liability goes no further than what they contributed. It says a limited partnership must be registered with your state or territory government.
business.gov.au says a written partnership agreement isn't compulsory, but having one makes expectations clear and can prevent disagreements between partners. The points it suggests covering include how much each partner contributes and what share of the business each owns, how profits and losses are split, and what happens when a partner joins or leaves or the partnership is wound up. It also suggests asking a lawyer to review the agreement.
Worked example
| Item | Partner A (AUD) | Partner B (AUD) |
|---|---|---|
| Opening balance | 30,000.00 | 10,000.00 |
| Money put in during the year | 0.00 | 5,000.00 |
| Share of the year's profit | 24,000.00 | 24,000.00 |
| Taken out as drawings | 20,000.00 | 26,000.00 |
| Closing balance | 34,000.00 | 13,000.00 |
Illustrative example only: these rows show the method and are not sourced data.
Common mistakes
- Recording every partner's withdrawals in one shared drawings account, so no one can tell what each partner has taken out.
- Dividing the profit in proportion to each partner's capital when the partners agreed a different split.
- Leaving the profit split to memory, with nothing in writing, until the partners disagree about it at year end.
Related terms
Related service
Small business bookkeeping
Your books kept current, every month.
Sources
- Partnership
business.gov.au, Australian Government. Current at 16 October 2026, released 1 May 2026. Checked 16 October 2026.
© Commonwealth of Australia 2020, licensed under CC BY 3.0 AU. Licence: CC BY 3.0 AU.