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Business Partnership Agreement Australia: Is Your Business Partnership Legally Protected?
A business partnership agreement in Australia can become critical when you’re going into business with someone, whether you end up structured as a formal partnership or as co-founders and shareholders in a company. A verbal agreement or a handshake is not enough to protect you if important parts of the relationship have never been properly documented.
If you’re operating as a partnership without a written agreement, your arrangement is generally governed by default rules under the relevant state Partnership Act, which split profits, losses and decision-making equally regardless of what you actually contributed or agreed to informally. If you’ve incorporated together instead, the equivalent gap is just as common and just as risky: unformalised shareholder arrangements, undefined director authority, and share splits that were agreed verbally but never actually documented in a shareholder agreement or company constitution.
Throughout this article, “business partner” is used as plain-English shorthand for whoever you’re building the business with, regardless of whether that relationship is legally structured as a partnership or as a company. The specific legal mechanics differ depending on which structure you’re using, but the underlying problem is the same either way: an informal understanding is not the same thing as an enforceable agreement.
Most business partnerships and co-founder relationships don’t fail because the business idea was wrong. They fail because two people who trusted each other never wrote down what happens if one of them wants to leave, stops contributing, or sees the business differently to how the other one does. By the time that conversation needs to happen, the friendship or working relationship is usually already under strain, which is exactly the wrong time to be negotiating from scratch.
This article covers what’s legally at stake when you go into business with someone informally, whether as partners or as co-founders in a company, what a proper business partnership agreement needs to cover, and how to think about partnership vs company structure in Australia in the first place.
Business Partnership Agreement Australia: What Happens If You Don’t Have One?
If two or more people are carrying on a business together with a view to profit, without operating through a company, they may be considered partners at law, whether or not they ever intended to formalise it or signed anything. That determination is based on how the business actually operates, not on what the people involved call themselves.
Where no written business partnership agreement exists, the default rules under the Partnership Act 1895 (WA) (or the equivalent Act in your state) generally apply instead.
These default rules typically provide that partners share profits and losses equally, regardless of unequal financial contributions, unequal hours worked, or unequal risk carried, and that decisions about the business generally require the agreement of all partners.
That default position catches a lot of business owners off guard. Two founders might have agreed informally that one is entitled to 70 percent of profits because they invested the initial capital, only to find that the legal default is an equal 50/50 split unless that arrangement was properly documented.
Each partner is also generally personally liable for the debts of the partnership, including debts run up by the other partner, without the protection a company structure would offer.
If you’ve incorporated a company together instead, there’s no equivalent “default equal split” imposed by the Partnership Act, because the Corporations Act 2001 (Cth) works differently: share ownership is fixed by however many shares each of you was allocated when the company was registered, which is at least documented by ASIC.
What’s often missing is everything around that shareholding: whether decisions require unanimous shareholder agreement or just a board resolution, what happens if a shareholder who’s also a director stops contributing, and what rights a minority shareholder actually has if the majority wants to go in a different direction.
Without a shareholders’ agreement sitting alongside the company constitution, those questions are left to the general default provisions of the Corporations Act and the company’s constitution, which are rarely written with a two-person founding team in mind.
Partnership vs Company in Australia: Which Structure Should You Actually Use?
Whether a partnership structure is appropriate at all is a separate question from whether you need an agreement.
A partnership can work for closely aligned, low-risk collaborations, but it exposes each partner personally to the other’s decisions and debts. A company structure creates a separate legal entity, which can offer more protection and make it easier to formally define each person’s shareholding, role and decision-making rights through a company constitution and shareholder arrangements.
If you’re comparing a partnership vs company structure in Australia, the choice can affect liability, ownership, decision-making and the type of agreement the people involved may need.
We’ve covered this decision in more detail in Choosing the Right Business Structure for Your Online Business in Australia, and in Do I Need a Business Name or a Company? Understanding Your Options in Australia, which both go into the liability and tax differences in more detail.
If you’re going into business with someone else specifically, the questions in those articles matter even more, because you’re no longer just managing your own risk.
What Should a Business Partnership Agreement Actually Cover?
Regardless of whether you formalise the relationship as a partnership or a company, the underlying agreement between the people involved should generally address the same core issues.
A clear business partnership agreement in Australia should make the expectations between the people involved explicit rather than leaving key parts of the relationship to assumption.
Roles and Responsibilities
Who is actually doing what, and what happens if one person’s contribution changes over time, whether that’s hours worked, skills contributed, or ongoing involvement in day-to-day operations.
Financial Contributions and Profit Share
What each person put in initially, whether that’s cash, assets, intellectual property or unpaid labour, and how profits, losses and future capital contributions will be shared.
This should be an explicit, agreed figure, not an assumption.
Decision-Making Authority
Which decisions require unanimous agreement, which can be made by a majority, and which one person has authority to make alone.
This becomes critical as the business grows and decisions carry more financial weight.
Intellectual Property Ownership
Who owns the brand, the website, the content, the software or the processes the business is built on, particularly if some of that existed before the partnership formalised.
Exit and Dispute Provisions
What happens if one person wants to leave, is no longer contributing, or the partners disagree about the direction of the business.
Without this, resolving a breakdown often means starting from a position of conflict rather than a pre-agreed process.
Business Partnership Agreement Australia FAQs
Do I legally need a written partnership agreement in Australia?
There is generally no law requiring a written partnership agreement to exist before you can operate a business with someone else. However, without one, your arrangement is likely governed by default rules under your state’s Partnership Act, which may not reflect what you actually intended, particularly around profit share and decision-making.
What happens if my business partner and I never agreed on how to split profits?
Where there is no written agreement, most state Partnership Acts default to an equal profit share between partners, regardless of how much money, time or effort each person actually put in. This applies even if there was a verbal or informal understanding that the split would be different.
Is a partnership or a company better for two people starting a business together?
It depends on the level of personal liability protection you want and how you intend to structure ownership and decision-making. A partnership is simpler to set up but exposes each partner personally to the business’s debts and to decisions made by the other partner. A company creates a separate legal entity and can offer more structured protection, but comes with additional ASIC compliance obligations.
Can I use a business collaboration agreement instead of a formal partnership deed?
A business collaboration agreement can serve a similar function to a partnership agreement by setting out roles, financial arrangements, intellectual property ownership and dispute resolution, and can be used whether you’re formalising a partnership, a joint venture, or a collaboration between separate existing businesses. Which document is most appropriate depends on your specific structure and should ideally be confirmed with a lawyer.
If my co-founder and I have set up a company, do we still need an agreement?
Yes. Registering a company with ASIC and allocating shares does not, on its own, document how decisions get made, what happens if a shareholder stops contributing, or what happens to their shares if they leave. That’s generally the role of a shareholders’ agreement, which sits alongside the company constitution and addresses exactly the same categories of risk that a partnership agreement would for a formal partnership.
This blog is intended for general information purposes only and does not constitute legal advice. The content is based on Australian law and may not be current at the time you read it. Legal requirements may vary depending on your circumstances. Always seek independent legal advice tailored to your specific situation before acting on any information provided.
References
· Partnership Act 1895 (WA) — Western Australian Legislation
· Corporations Act 2001 (Cth) — Federal Register of Legislation
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