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Business Partnership Profit Sharing in Australia: Decision-Making, Deadlock and Director Duties
Business partnership profit sharing in Australia involves more than simply deciding how profits will be split. A business partnership or shareholder agreement should also set out who has authority to make which decisions, what happens if the partners or co-founders disagree and can’t reach a resolution, and how those rules interact with any director duties that apply if the business operates through a company.
Getting the profit or dividend share right but leaving decision-making and deadlock unaddressed is one of the most common gaps we see, whether the document in question is a partnership agreement or a shareholders’ agreement, and it’s often the gap that causes the most damage.
Money is usually the first thing new business partners think to agree on. It’s rarely the thing that actually breaks a partnership down. What tends to cause the real damage is disagreement over direction, unequal ongoing effort, or a decision one partner made that the other didn’t agree with, none of which a simple profit-split clause addresses.
Business Partnership Profit Sharing in Australia: What Happens Without an Agreement?
As covered in more detail in Is Your Business Partnership Legally Protected?, where no written agreement exists, most state Partnership Acts default to an equal profit split between partners, regardless of unequal financial contribution, unequal hours worked, or unequal risk carried.
If your actual business partnership profit share is meant to be different, whether that’s 60/40, weighted by capital contribution, or tied to performance, that needs to be explicitly documented.
An assumed or verbally agreed split is not something you can necessarily rely on if the relationship breaks down.
Decision-Making Authority Between Business Partners
As a business grows, decisions start to carry more financial and reputational weight, and vague or assumed authority becomes a genuine risk.
A properly drafted business partnership or shareholders’ agreement should generally distinguish between three categories of decision.
Decisions Requiring Unanimous Agreement
Typically major decisions such as taking on debt, bringing in a new partner or investor, or making a significant change to the business’s direction.
Decisions Requiring Majority or Specific-Partner Agreement
Day-to-day operational decisions that don’t need everyone’s sign-off but should still have a clear, agreed process.
Decisions One Partner Has Sole Authority to Make
Often tied to that partner’s specific role or expertise, and worth defining explicitly so the other partner isn’t second-guessing decisions within that person’s agreed remit.
Director Duties When the Business Operates Through a Company
Where the business operates through a company rather than a straightforward partnership, decision-making also needs to account for director duties under the Corporations Act 2001 (Cth), which generally require directors to act in good faith in the best interests of the company, and not to improperly use their position or information obtained through it.
These duties exist independently of what’s agreed between the founders personally, and can matter significantly if a dispute later ends up in front of a court.
This is a separate question from what’s agreed in a shareholders’ agreement about how shareholders themselves vote or exercise their rights: director duties govern how each founder acts when wearing their director hat, while a shareholders’ agreement governs how they act as owners.
What Is a Deadlock Clause in a Business Partnership Agreement?
Deadlock clause sets out what happens when partners with equal decision-making power genuinely cannot agree on an important issue, and neither side has the authority to simply override the other.
Without one, a disagreement between two 50/50 partners can bring decision-making to a complete standstill, sometimes for long enough to seriously damage the business.
Common deadlock-breaking mechanisms include requiring the partners to attempt mediation before any other step, giving a neutral third party or independent expert a casting vote on the specific issue in dispute, or triggering a structured buy-out process where one partner can offer to buy the other out at a valuation set by an agreed mechanism.
Which mechanism is appropriate depends on the size and nature of the business, and is worth discussing properly rather than defaulting to a generic clause.
Put the Rules in Writing Before There’s a Dispute
Our Business Collaboration Agreement template includes schedules for revenue sharing, cost allocation, and roles and responsibilities, along with a structured dispute resolution mechanism covering negotiation, mediation and, where necessary, litigation, so these questions are addressed before they become a live dispute.
When Should Business Partners Review Their Governance Arrangements?
If your business has been operating for a while without ever formally reviewing how decisions actually get made, or if you’ve grown from a simple two-person arrangement into something with more revenue, more risk, and potentially external investors, it’s worth stepping back and reviewing whether your governance arrangements still match reality.
This is exactly the gap covered in during our Legal Audit, which every scaling business should do before something goes wrong.
Business Legals Audit
A Business Legals Audit reviews your current structure and business arrangements against how your business actually operates today, and flags where your decision-making and profit-share arrangements need updating.
From $495
Business Partnership Profit Sharing Australia FAQs
How should profit be split between business partners in Australia?
There is no legal requirement for a specific split. Without a written agreement, most state Partnership Acts default to an equal split regardless of contribution. If you want a different arrangement, such as one weighted by capital or time invested, this needs to be explicitly agreed and documented in writing.
Can business partners agree to a 60/40 profit split?
A business partnership agreement can document a profit-sharing arrangement that differs from the default equal split, including a 60/40 arrangement where that is what the partners have agreed. The intended split should be clearly documented rather than left to assumption or a verbal understanding.
What is a deadlock clause in a partnership agreement?
A deadlock clause sets out a structured process for resolving a disagreement between partners who have equal decision-making authority and cannot reach agreement on an important issue. Common mechanisms include mandatory mediation, an independent casting vote, or a structured buy-out process.
What happens if business partners can’t agree on a major decision?
Without a deadlock clause or agreed decision-making process, a disagreement between partners with equal authority can bring the business to a standstill, since neither partner can act without the other’s sign-off. A properly drafted agreement should set out a clear process for resolving exactly this scenario.
What decisions should business partners agree on in advance?
A business partnership or shareholders’ agreement should generally make clear which decisions require unanimous approval, which can be made by a majority or nominated partner, and which decisions fall within one person’s specific role or authority.
Do director duties apply if my business partner and I operate through a company?
Yes. If your business operates through a company structure, directors generally owe duties under the Corporations Act 2001 (Cth) to act in good faith in the company’s best interests and not to misuse their position or company information, regardless of what’s agreed between the founders personally.
What is the difference between a director’s duties and a shareholders’ agreement?
Director duties govern how a founder acts when exercising powers as a director of the company. A shareholders’ agreement deals with rights and arrangements between the owners, including matters such as voting, decision-making, profit or dividend arrangements and dispute processes.
Does a 50/50 business partnership need a deadlock clause?
A deadlock provision can be particularly important where two partners or shareholders have equal decision-making power, because neither person may be able to resolve a disputed decision simply by outvoting the other.
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.
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