Joint Venture Agreement Vs Shareholders Agreement

You've found another business that could be a great fit. Maybe you're combining skills for one big project, launching a product together, or testing a new market without merging your whole business.

Then the legal question lands: do you collaborate by contract, or do you set up a company and become shareholders?

The choice between a joint venture agreement and a shareholders agreement can feel technical, but it usually comes down to practical things: who carries the risk, who controls decisions, who owns the IP, how money goes in and out, and how easily you can walk away if the project ends.

Is A Joint Venture Agreement The Same As A Shareholders Agreement?

No, a joint venture agreement and a shareholders agreement do different jobs, even though they can both be used for a joint business project.

A joint venture agreement is usually a contract between two or more parties who agree to work together for a specific purpose. You might each keep your own business, ABN, staff, assets and customers, while agreeing on the rules for the shared project.

A shareholders agreement is used when you set up or use a company, usually a proprietary limited company, and the parties own shares in that company. The company becomes the vehicle for the project, and the shareholders agreement sits alongside the company's constitution and the Corporations Act 2001.

So, the real question isn't just document A versus document B. It's whether your collaboration should be:

• Contract-based, where each party stays separate and the joint venture agreement controls the project.
• Company-based, where you form or use a company and the shareholders agreement controls ownership, voting, funding and exits.
• A mix of both, where the company is the joint venture vehicle and you may need both a shareholders agreement and project contracts.

Templates often blur these lines. A good document should match the structure you've chosen, not force your project into the wrong legal box.

Should You Use A Joint Venture Or Company Structure In Australia?

It depends on whether you're running a limited project together or building an ongoing business that needs its own structure.

A contractual joint venture can work well where the project has a defined scope. For example, you might be bidding for one government contract, co-developing one product, or sharing resources for a 12 month pilot.

A company structure can make more sense where you want a separate business with its own identity, bank account, assets, employees, contracts and growth plans. In Australia, this usually means registering a proprietary limited company with ASIC. The company gets an ACN, may apply for an ABN, and operates as a separate legal entity.

When A Contractual Joint Venture Often Fits

• You want each business to stay separate.
• The project has a start and finish date, or a clear commercial outcome.
• You don't need outside investors to buy into the project vehicle.
• You want a simpler way to divide work, revenue and responsibility.
• You want to unwind the arrangement without selling shares or winding up a company.

When A Company Often Fits

• You want a new brand, platform or operating business to grow over time.
• You need a clean ownership structure, such as 50/50 or 60/40 shareholding.
• You may raise capital or bring in new shareholders later.
• You want the company to hold key assets, contracts or licences.
• You want governance rules for directors, board approvals and shareholder voting.

Be careful with the phrase business partnership. In Australia, a partnership can sometimes arise even when you didn't mean to create one, depending on the facts and the Partnership Act in your state or territory. If you don't want a partnership, your agreement should say that clearly and your conduct should match it.

How Do Liability, Tax And Accounting Affect The Choice?

Liability, tax and accounting can be the deciding factors, and you should get legal and accounting input before you lock in the structure.

From a legal risk perspective, a company can help separate the project from each owner's existing business. A proprietary limited company is generally liable for its own debts, while shareholders are usually only exposed up to any unpaid amount on their shares. Directors can still have personal duties and potential liabilities under the Corporations Act 2001, so it's not a risk-free shield.

In a contractual joint venture, each party may be directly responsible for its own promises under the contract. If your agreement says you must pay 40% of project costs, deliver key assets, or indemnify the other party for certain losses, that obligation usually sits with your business directly.

A Worked Example

Say Priya runs a food manufacturing business in Melbourne and Tom runs a distribution business in Brisbane. They want to launch a new snack brand together.

Priya contributes $60,000 in product development and equipment access. Tom contributes $40,000 in launch funding and distribution support. They expect $300,000 in first-year sales, but they need to spend $80,000 on packaging, marketing and retailer onboarding before revenue comes in.

If they use a contractual joint venture, the agreement might say Priya pays 60% of approved costs and Tom pays 40%, while profits are split 50/50 after agreed expenses. If a supplier invoice isn't paid, the supplier may look to the party that signed the supplier contract, not some separate project entity.

If they set up a company, the company might enter supplier contracts, own inventory and invoice customers. Priya and Tom could own shares 60/40 or 50/50, depending on what they agree. The company will need its own accounting records, director approvals and tax registrations where needed.

Your accountant can help you compare the tax and reporting consequences, including GST, income recognition, losses, asset ownership and how profits can be paid out. Your lawyer can then make sure the documents reflect that structure properly.

Who Controls The Project, IP And Funding?

Your agreement should spell this out, because control, intellectual property and funding are where many collaborations get tense.

In a contractual joint venture, control is usually built around the project plan. You can set up a steering committee, require unanimous approval for major decisions, and allocate day-to-day tasks to each party.

In a company, control usually runs through directors, shareholder voting and reserved matters. For example, your shareholders agreement might say the company can't issue new shares, take on debt over $50,000, change the business plan, sell key assets or register trade marks without approval from both shareholder groups.

IP Ownership Needs Extra Care

Don't assume that because you worked on something together, the project automatically owns it. Copyright, trade marks, software, designs, recipes, customer lists and confidential know-how can all raise different ownership issues.

Your agreement should say:

• what each party already owns before the project starts, often called background IP
• whether the project or company can use that background IP, and for how long
• who owns new IP created during the project
• who can register trade marks with IP Australia
• what happens to IP rights if the project ends

Funding also needs clear rules. If one party pays more than expected, is that treated as a loan, extra equity, a reimbursable expense or just an increased contribution? If the company needs more money, can one shareholder be diluted if they don't contribute?

These choices can change the commercial bargain completely, so they shouldn't be left to a friendly handshake.

How Easy Is It To Exit Or Unwind The Arrangement?

A contractual joint venture is often easier to unwind than a company structure, but only if the agreement has clear exit rules.

If you're working together by contract, you can agree what happens when the project finishes, misses targets, loses funding, or one party wants out. You might split remaining stock, transfer customer relationships, return confidential information and settle outstanding invoices.

With a company, exiting usually means dealing with shares. That can involve pre-emptive rights, valuation rules, buyouts, drag-along and tag-along rights, director resignations, ASIC records and possibly a sale or restructure. None of that's impossible, but it does need planning.

Exit Issues To Decide Early

• Deadlock: what happens if you can't agree on a major decision?
• Default: what happens if one party doesn't fund, deliver or meet agreed milestones?
• Buyout rights: can one party buy the other out, and how is the price calculated?
• Restraints: can a departing party compete with the project or approach customers?
• Assets and IP: who keeps stock, equipment, domains, accounts, software and trade marks?
• Data and privacy: who keeps customer data, and how will you comply with the Privacy Act 1988 if it applies to your business, as well as any other privacy, confidentiality or data handling obligations?

If your collaboration involves selling to customers, your exit plan should also cover ongoing customer obligations. The Australian Consumer Law may still apply to warranties, refunds, misleading conduct and consumer guarantees, even if the joint project has ended.

The easier you want the exit to be, the more specific your agreement needs to be at the start.

What Should Go In Your Agreement?

Your agreement should cover the commercial deal, decision-making, risk allocation and exit plan in enough detail that you aren't guessing later.

If you're using a company for the joint venture, your main document is usually a shareholders agreement. If you're collaborating by contract, your main document is usually a joint venture agreement. A lawyer should tailor the document before you use it, because small drafting differences can change liability, ownership and exit rights.

Fill-In Outline For A Contractual Joint Venture Agreement

1. Parties: list each business, ABN or ACN details, and who has authority to sign.
2. Purpose And Scope: describe the project, territory, timeline and what is outside the arrangement.
3. Contributions: set out cash, staff, equipment, services, IP and other resources each party will provide.
4. Costs And Revenue: explain how expenses are approved, paid and reimbursed, and how revenue or profit is split.
5. Decision-Making: list day-to-day powers, approval thresholds and any unanimous consent matters.
6. IP And Confidentiality: separate background IP from new IP and protect confidential information.
7. Customer And Supplier Contracts: state who signs contracts and who is liable for performance.
8. Reporting And Records: set out budgets, invoices, reporting dates and access to project records.
9. Default And Disputes: include notice, cure periods, escalation steps and practical consequences for non-performance.
10. Exit And Termination: explain when the arrangement ends and what happens to assets, customers, IP and unpaid amounts.

Fill-In Outline For A Shareholders Agreement

1. Company Details: include the company name, ACN, share classes and initial shareholdings.
2. Board And Directors: say who can appoint directors and how board decisions are made.
3. Reserved Matters: list decisions that need special approval, such as debt, budgets, share issues and asset sales.
4. Funding: set out shareholder loans, further contributions, dilution and what happens if someone doesn't fund.
5. Share Transfers: include pre-emptive rights, permitted transfers and restrictions on selling to outsiders.
6. Deadlock And Exit: include deadlock steps, buy-sell rights and valuation rules.
7. Founder Or Key Person Obligations: cover time commitments, roles, restraints and confidentiality where relevant.
8. IP And Data: confirm what the company owns or licences and how business data is handled.

For a company-based joint venture, you may also need customer terms, supplier agreements, employment contracts, privacy documents, IP assignments and licences. The shareholders agreement won't automatically cover every operational contract.

Key Takeaways

• A joint venture agreement is usually a project contract, while a shareholders agreement governs owners of a company.
• A contractual joint venture can suit a defined project, while a company can suit an ongoing business or investment-ready structure.
• Liability, tax and accounting should be considered early, because the structure affects who signs contracts, owns assets and carries risk.
• Control, IP ownership and funding rules need to be written clearly, especially where both parties are contributing different things.
• Exits are easier when you plan them upfront, including deadlock, default, buyouts, customer obligations and what happens to IP.
• Templates can be a useful starting point, but your final document should match your project, structure and commercial deal.

If you'd like help with choosing the right structure, preparing your joint venture or shareholders agreement, and sorting out IP, funding and exit terms, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.