How To Set Up a Partnership Agreement in Australia

Thinking about going into business with a co-founder, friend or family member? A partnership can be a simple and flexible way to get started in Australia - but only if you set clear ground rules from day one.

That’s where a well-drafted partnership agreement comes in. It sets expectations, reduces risk, and helps you avoid misunderstandings as your business grows.

In this guide, we’ll cover what a partnership agreement is, whether a partnership structure suits your plans, what to include in the agreement, how to set one up in Australia, and the key laws to keep in mind. We’ll also flag the essential legal documents that protect your business from day one.

What Is A Partnership Agreement In Australia?

A partnership agreement is a contract between two or more people who run a business together and share profits. It explains how you’ll make decisions, contribute money or assets, split profits, handle tax, bring in new partners, and resolve disputes.

While Australian law recognises partnerships without a written contract, relying on a handshake is risky. If something goes wrong, you’ll fall back on general state or territory partnership laws - which may not reflect how you actually want to run your business.

A tailored agreement gives you control and clarity. It also helps your accountant and your bank understand how the partnership operates, which makes practical steps like opening accounts or financing simpler.

Is A Partnership Right For Your Small Business?

Before you draft documents, consider whether a partnership is the best structure for your goals. In Australia, many small businesses start as a sole trader, a partnership, or a company. Each option has pros and cons.

• Partnership: Simple and cost-effective to set up. Partners share control and profits, but they also share liability - which means each partner can be personally responsible for partnership debts.
• Company: A separate legal entity that can offer limited liability and is often more attractive to investors. It involves more compliance and costs to run. If you’re leaning this way, it’s worth looking at a proper Company Set Up and using a Shareholders Agreement instead of a partnership agreement.
• Sole Trader: The simplest option if you’re flying solo. However, like partnerships, you’re personally responsible for business liabilities.

Ask yourself:

• Do we want a simple, low-cost structure to get started?
• Are we comfortable with personal liability for business debts?
• Do we plan to bring in investors or scale quickly - which might favour a company?

There’s no one-size-fits-all answer. Many teams start as a partnership to test an idea, then move to a company later as they scale. If that’s your plan, a solid agreement will make any transition smoother.

What Should A Partnership Agreement Include?

Every partnership is different, but most agreements cover similar core areas. The goal is to remove ambiguity and set a practical roadmap for everyday operations and the “what ifs”.

1) Purpose, Scope And Contributions

• Business purpose and activities: Define what the partnership will do now, and how new activities will be approved later.
• Capital and asset contributions: Record who contributes money, equipment, IP or other assets, and how ownership is treated.
• Workload and roles: Clarify each partner’s responsibilities and expected time commitment.

2) Decision-Making And Authority

• Voting rights: One partner, one vote or weighted by contributions?
• Matters requiring unanimous approval: E.g. taking on debt, entering major contracts, changing the business model.
• Authority limits: Spending thresholds or contract limits before partner approval is required.

3) Profit Sharing, Drawings And Finances

• Profit and loss split: Equal shares or based on contributions? Specify timing and method of distributions.
• Drawings: Rules around taking money out of the business during the year.
• Bank accounts and bookkeeping: Who’s responsible for finances and approvals.

4) IP, Branding And Confidentiality

• Who owns existing IP: Make sure any pre-existing brand names, designs or code are correctly licensed to the partnership.
• Who owns new IP: Usually, anything created for the partnership is owned by the partnership (or held on trust for it).
• Confidentiality obligations: Clear duties to protect sensitive information. For third parties, use a Non-Disclosure Agreement.

5) Onboarding And Exiting Partners

• Admitting new partners: Process, approvals, and how profit shares are adjusted.
• Voluntary exit: Notice periods, handover, and valuation methodology for buying out the departing partner’s interest.
• Forced exit: Triggers such as serious breach, insolvency or prolonged absence, plus a fair exit mechanism.

6) Disputes, Restraints And Non-Compete

• Dispute resolution: A stepped process (e.g. negotiation, mediation, then arbitration/litigation) to keep matters out of court where possible.
• Restraints: Reasonable non-compete and non-solicitation rules to protect the business after a partner leaves.

7) Winding Up And Contingencies

• Dissolution: When and how the partnership can be ended, and how assets and liabilities are split.
• Insurance and key-person risks: Consider how the business will handle long-term illness or death of a partner.

If you’re formalising an end to a partnership later, a Partnership Dissolution Agreement records who keeps what and limits future disputes.

How Do You Set Up A Partnership In Australia?

Here’s a practical, step-by-step path to get your partnership off the ground.

Step 1: Align On The Business Plan

Agree on your business model, target market, pricing, and growth goals. This isn’t just for strategy - it underpins key terms in your agreement like decision-making, profit split, and capital needs.

Step 2: Choose The Structure And Name

Confirm you’re proceeding as a partnership (not a company). Then choose your business name and check availability. If you trade under a name that’s not your personal names, you’ll need to register a Business Name.

Step 3: Get The Essentials (ABN, TFN, GST)

• ABN: Apply for an Australian Business Number for the partnership.
• TFN: Partnerships need their own Tax File Number.
• GST: Register for GST if your turnover is (or is likely to be) $75,000 or more.

Your accountant can help set up the right tax registrations and advise on PAYG and BAS obligations.

Step 4: Draft And Sign Your Partnership Agreement

Put your terms in writing before you start trading. Cover scope, contributions, profit split, exits and IP ownership, and make sure each partner signs.

If you’re unsure whether a partnership is best long-term, keep an eye on when it makes sense to shift to a company. In that case, a Shareholders Agreement is the equivalent governance document for co-founders under a company structure.

Step 5: Open Accounts, Set Controls And Insure

Open a partnership bank account, set spending approvals, and consider business insurance. Create a simple finance policy so everyone knows how money moves.

Step 6: Lock In Your Brand And Website Setup

Protect your brand early by applying to register your trade mark (name and/or logo). If you’ll have a website, publish a compliant Privacy Policy and standard customer terms.

What Laws And Ongoing Compliance Apply To Partnerships?

Running a partnership in Australia involves several legal areas. Here are the big ones to keep on your radar.

Partnership Laws (State and Territory)

Each state and territory has its own Partnership Act that sets default rules for formation, rights and dissolution. Your agreement can replace many of those defaults, but not all - particularly duties around acting in good faith and accounting to other partners.

Australian Consumer Law (ACL)

If you sell goods or services, you must comply with the Australian Consumer Law. That includes not misleading customers, honouring consumer guarantees, and being transparent about pricing and refunds. Clear Terms of Trade or website terms help set expectations and reduce disputes.

Privacy Act And Data Handling

If you collect personal information (for example, through a contact form, online store or mailing list), you need to handle it properly under privacy law. Most businesses publish a simple, tailored Privacy Policy so customers know what you collect and why.

Employment Law

Hiring staff triggers obligations under the Fair Work system. Use proper Employment Contracts, pay the correct rates under any applicable award, and implement basic workplace policies (safety, leave requests, devices and data security).

Intellectual Property

Confirm who owns existing and new IP. Register your brand and logo as a trade mark early, and get NDAs signed when discussing new products or partnerships with third parties using a standard Non-Disclosure Agreement.

Tax And Reporting

Partnerships lodge a partnership tax return, and each partner reports their share of profit or loss on their individual return. Keep good records, meet BAS and GST reporting cycles, and sort superannuation for any employees.

Key Documents To Protect Your Partnership

Beyond your partnership agreement, a small set of practical documents will significantly reduce risk and friction.

• Partnership Agreement: Your core governance document covering decision-making, profit sharing, exits, and IP ownership.
• Terms of Trade: Clear customer terms for pricing, delivery, payment terms, warranties and liability. For online businesses, use website terms or platform terms instead of (or alongside) standard Terms of Trade.
• Privacy Policy: Explains how you collect, use and store personal information. A compliant, easy-to-read Privacy Policy builds trust with customers and keeps you aligned with the Privacy Act.
• Non-Disclosure Agreement (NDA): Protects confidential information when speaking with suppliers, distributors or potential investors. Use a straightforward Non-Disclosure Agreement so you don’t hold back on valuable discussions.
• Employment Contracts And Policies: If you bring on staff, use written Employment Contracts and put basic workplace policies in place (leave, devices, confidentiality, health and safety).
• Trade Mark Registration: If brand is important (it is), file to register your trade mark for your name and/or logo. This makes enforcement faster and deters copycats.
• Co‑Founder Separation Or Dissolution Documents: If a partner exits, a short Partnership Dissolution Agreement or a co-founder separation deed records the terms and prevents future claims.

You may not need all of these on day one, but most partnerships benefit from several of them early. Getting the foundations right means fewer surprises later.

Common Mistakes To Avoid

• Skipping the paperwork: Verbal agreements are a recipe for misunderstandings. Put key terms in writing before trading.
• Ambiguous profit splits: If profit shares depend on contributions or milestones, say so explicitly and set review dates.
• Unclear authority: Set spending thresholds and signing limits to prevent accidental commitments by a single partner.
• Ignoring IP: Decide who owns the brand and any pre-existing IP, then apply to register your trade mark early.
• No exit roadmap: People’s circumstances change. A clear exit mechanism prevents the whole business from stalling.

When Should You Consider Moving From A Partnership To A Company?

Many partnerships eventually transition to a company for growth, investment, and liability reasons. It’s worth considering a move when:

• You’re hiring a team and want clearer separation between business and personal liabilities.
• You plan to raise capital, offer equity, or bring in new owners.
• You want a structure that’s easier to transfer or sell down the track.

If that becomes your path, a Company Set Up with a proper constitution and a Shareholders Agreement will replace your partnership agreement as the business governance framework.

Key Takeaways

• A partnership agreement is essential if you’re running a business with others - it sets the rules for decisions, profits, roles and exits.
• Partnerships are simple and flexible, but partners share liability; weigh this against moving to a company as you grow.
• Cover the fundamentals in writing: contributions, voting, profit splits, IP ownership, onboarding/exiting partners, disputes and dissolution.
• Set up the essentials early: ABN/TFN, bank accounts, a Privacy Policy, clear Terms of Trade, NDAs and brand protection through trade marks.
• Stay on top of compliance: consumer law, privacy, Fair Work obligations and partnership tax reporting.
• Plan for change - including partner exits and a possible move to a company - so your business can grow without friction.

If you’d like a consultation on setting up a partnership agreement for your business, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.