Nominal Consideration in Australian Contracts: When $1 Is Enough

If you’ve ever been told you need to pay “$1” (or “$10”) to make a contract “official”, you’ve bumped into the concept of nominal consideration.

It comes up a lot for Australian startups and small businesses, especially when you’re signing documents that involve ownership, transfers, or rights - like assigning IP, transferring shares, or entering into deeds.

But here’s the catch: nominal consideration is often used because it’s convenient, not because it has some automatic legal magic. If it’s used incorrectly (or in the wrong document type), it may not achieve what you think it does - and it can create practical issues later, especially if you raise capital, sell the business, or face a dispute.

Below, we’ll break down what nominal consideration means, when it’s appropriate, what to watch out for, and what you can do to keep your legal foundations clean as you grow.

What Is Nominal Consideration (In Plain English)?

In contract law, consideration is the “something of value” each party gives in exchange for what they receive.

It doesn’t need to be equal value. It just needs to be something real and legally recognised, and it must be part of the bargain between the parties (not something that happened in the past).

Nominal consideration is consideration that has a very small amount of value - commonly $1, $10, or another token amount (sometimes described as a “peppercorn”) - used to help satisfy the “something of value” requirement without changing the commercial deal.

It’s usually included where:

• one party is giving a benefit and the other party isn’t really paying for it in a meaningful way;
• the parties want to avoid listing the true commercial payment amount (for privacy or simplicity); or
• the payment is symbolic, because the “real” deal is happening elsewhere (for example, ongoing work, mutual promises, or broader commercial arrangements).

It can appear in documents as phrases like:

• “in consideration of $1, the receipt of which is acknowledged…”
• “for valuable consideration…”
• “for good and valuable consideration…”

Those phrases sound formal, but they’re trying to solve a simple legal issue: making sure the agreement has the required ingredients to be enforceable.

Why Does Consideration Matter In Australian Contracts?

As a general rule, for a contract to be legally binding under Australian contract principles, you need:

• offer and acceptance;
• intention to create legal relations;
• certainty of terms; and
• consideration (unless you’re using a deed).

Consideration is important because it helps distinguish a contract from a gift. If one party is only receiving a benefit and not giving anything in return, the arrangement may not be enforceable as a contract.

This comes up more often than people expect in day-to-day business, like:

• a founder assigning IP to the company “for free”;
• a business forgiving a debt informally;
• a supplier agreeing to vary a contract without anything in return; or
• a party signing a restraint, release, or waiver.

When you’re using a regular contract (not a deed), nominal consideration can be a quick way to show there is “something” being exchanged - as long as it’s genuinely part of the bargain.

And if you’re building your startup’s contract stack, it’s worth getting the basics right early - including the mechanics of offer and acceptance - because they impact whether your documents do what you think they do. (This is also why concepts like offer and acceptance matter beyond theory.)

Common Situations Where Nominal Consideration Shows Up For Startups

Nominal consideration isn’t limited to one type of agreement. But in our experience, it most often appears in a few startup-specific scenarios.

1) IP Assignment From Founders To The Company

When you set up a company, you’ll often want to ensure the company (not you personally) owns key intellectual property - like your brand, software code, content, designs, customer lists, or processes.

If you’re transferring that IP to the company via an IP assignment agreement, nominal consideration may be used to support enforceability.

That said, whether nominal consideration is appropriate depends on the structure and wording of the deal. In some cases, the better tool is a deed (more on that below), especially when the transfer is one-sided.

2) Share Transfers (Including Transfers Between Founders Or Family)

Share transfers can be done for market value, at a discount, or for a token amount.

Nominal consideration sometimes appears where the parties don’t want to list the true commercial value in the share transfer paperwork, or where the transfer is being made for strategic reasons rather than a “sale” in the usual sense.

If you’re transferring shares, it’s important to think beyond the $1 figure. You should also check what your constitution and shareholder arrangements say about transfers, approvals, pre-emptive rights, and valuation.

For example, where there are multiple shareholders (or you plan to bring in investors later), a Shareholders Agreement can set out the rules around ownership changes and avoid messy disputes down the track.

3) Deeds Of Release, Waiver, Or Settlement

When you’re resolving a dispute or documenting a release of rights, you may see nominal consideration referenced (sometimes as “$1 and other valuable consideration”).

However, releases are a classic situation where the choice between contract vs deed really matters. If the release isn’t supported by consideration in a contract, enforceability can become an issue.

Many businesses use a deed format for this reason - because deeds don’t require consideration in the same way contracts do.

4) Contract Variations (Changing An Existing Agreement)

If you’re changing a contract midstream - for example, extending a delivery deadline, changing pricing, or altering scope - you should be careful.

It’s common for businesses to assume a signed variation is automatically enforceable. But if one party is getting a benefit (like extra time) and the other party isn’t getting anything new in return, consideration can become a grey area.

Sometimes nominal consideration is used. Sometimes the variation is structured so both parties provide new promises. Either way, it’s a reminder that contract mechanics matter when you’re scaling quickly and adjusting commercial arrangements.

Nominal Consideration vs “Real” Consideration: Does The Amount Matter?

In most cases, Australian contract law isn’t concerned with whether consideration is “adequate” - only whether it exists.

So a token amount can be enough in principle, provided it is genuine consideration, forms part of the bargain, and is not merely stated as a formality.

But there are a few practical and legal points to keep in mind.

It Must Be Real (Not Just Words On A Page)

If an agreement says $1 was paid, but it was never paid, that can create unnecessary risk later (for example, factual disputes about what was actually agreed, and whether the “consideration” was real). The level of risk can also depend on the drafting and the broader context.

From a risk-management perspective, if the agreement states nominal consideration is paid, you may want to actually pay it (even if it’s symbolic) and keep a record.

It Won’t Fix Every Enforceability Problem

Nominal consideration isn’t a universal “make my contract binding” solution. If your contract is missing other key elements (like clear terms, acceptance, authority, or intention), $1 won’t save it.

And if the arrangement is better characterised as a deed (for example, unilateral promises, releases, or certain types of assignments), you may be better off using a deed rather than relying on nominal consideration.

It Can Look Odd In Due Diligence

If you later raise investment or sell your business, people may review your contracts and corporate records closely.

Nominal consideration isn’t inherently suspicious. But if important assets (like core software IP) were “sold” for $1 with no other documentation, it can raise questions such as:

• Was the transfer properly authorised?
• Was the asset actually transferred, or is it still personally owned?
• Were there tax implications that weren’t considered?
• Was this intended as a gift (and if so, was it documented properly)?

This doesn’t mean you should never use nominal consideration. It means you should use it intentionally, and make sure the overall paperwork tells a coherent story.

When You Should Use A Deed Instead Of Nominal Consideration

One of the most common misunderstandings we see is businesses using nominal consideration in situations where a deed is more appropriate.

In simple terms:

• Contracts generally require consideration.
• Deeds generally do not require consideration (but they have stricter signing and form requirements).

So if you have a one-sided promise (where only one party is really doing something), a deed can be a cleaner option.

Common small business examples where a deed might make more sense include:

• Deeds of release (especially where one party is releasing claims without receiving a clear new benefit);
• Deeds of assignment (for example, assigning IP or contractual rights, depending on context);
• deeds used in corporate contexts (such as certain shareholder or restructuring actions).

If you’re running a company, you’ll also want to think carefully about execution. Incorrect signing can cause enforceability issues at exactly the worst time (like a funding round or a dispute). It’s worth understanding how signing works under section 127 and ensuring your internal governance documents support what you’re doing, including your Company Constitution where relevant.

As a practical guide, nominal consideration is often used where:

• both parties are making mutual promises (even if the commercial value is uneven); and
• you want a simpler contract structure rather than a deed.

A deed is often used where:

• the promise or transfer is mostly one-way; or
• you want to avoid arguments about whether consideration was given.

Legal And Commercial Risks To Watch Out For (So You Don’t Accidentally Create A Mess)

Nominal consideration is simple in theory, but it can create complexity in practice if it’s used without thinking through the broader business implications.

Stamp Duty And Tax Issues (Especially For Transfers)

While stamp duty has been abolished for many transactions in many states, it can still apply in specific contexts (for example, certain dutiable transactions involving land, or some share transfers in particular circumstances).

Also, the tax treatment of a transfer generally depends on what is actually happening - not just what you wrote as the consideration amount.

For example, transferring an asset “for $1” doesn’t necessarily mean its tax value is $1. If you’re dealing with valuable IP, shares, or business assets, it’s a good idea to get independent tax/accounting advice and legal advice together, so the legal paperwork and financial reporting match. (Sprintlaw can help with the legal side, but we don’t provide tax advice.)

Director Duties And “Underselling” Company Assets

If your company is transferring assets out (even to a related party), directors generally need to act in the best interests of the company and manage conflicts properly.

Nominal consideration can be a red flag if it looks like company assets were transferred for less than fair value without proper approvals or rationale.

This is particularly relevant if your startup is under financial stress, has creditors, or is preparing for fundraising where governance will be scrutinised.

Unclear Documentation Around What’s Being Exchanged

Sometimes agreements use nominal consideration as a placeholder, but they don’t clearly describe:

• what is being transferred (exact IP, specific shares, particular rights);
• when it transfers (on signing, on payment, on completion);
• what warranties are being given (ownership, non-infringement, authority); and
• what happens if something goes wrong (indemnities, limitations of liability, dispute resolution).

This can lead to disputes that are completely avoidable with clearer drafting.

Problems With “Free” Arrangements And Informal Deals

Startups often move quickly, and it’s common to do favours, swaps, and informal arrangements (especially early on).

But if your agreement is effectively “we’ll do X for you, and you’ll do nothing for us”, you should pause and consider whether you’re trying to document a gift, a contract, or a deed - and what you need the document to achieve.

This is also why having a solid contract foundation matters early on, whether it’s a customer contract, a supplier agreement, or a Non-Disclosure Agreement when you’re sharing sensitive information with developers, manufacturers, or potential investors.

What Legal Documents Often Include Nominal Consideration?

Nominal consideration isn’t a document itself - it’s usually a clause or statement inside an agreement.

Here are some common documents where you might see nominal consideration, and what you should be thinking about as a business owner.

• IP assignment agreements: ensure the IP is clearly defined, the assignment is effective, and the signing party has the right to assign it.
• Share transfers and related corporate documents: check transfer restrictions, approvals, pre-emptive rights, and whether you need shareholder resolutions.
• Contract variations: confirm the variation is clearly documented and legally supported (consideration vs deed).
• Deeds of release/waiver: if it’s a deed, ensure it’s drafted and executed correctly (don’t assume a “$1 clause” fixes execution issues).
• Founder and co-founder arrangements: make sure your ownership, vesting, and decision-making rules are properly set out from day one (especially if more than one person is contributing value early on).

And don’t forget: many agreements don’t fail because of a single clause - they fail because the overall setup doesn’t match how the business actually operates.

For example, if you’re collecting customer data through your website or app (even just emails for marketing), your compliance documents should match what you’re doing, including a Privacy Policy and appropriate terms for how your platform is used.

Key Takeaways

• Nominal consideration is a small token amount (often $1 or $10) used to help satisfy the consideration requirement in a contract.
• Consideration is one of the key ingredients that helps make a contract enforceable, but it won’t fix unclear terms, poor execution, or informal arrangements.
• Nominal consideration is commonly used in startup contexts like IP assignments, share transfers, releases, and contract variations - but it should be used intentionally.
• In one-sided arrangements, a deed may be more appropriate than relying on nominal consideration (and execution requirements matter).
• Using nominal consideration can create practical issues later in due diligence if the paperwork doesn’t clearly show what was transferred and why.
• Good documentation early (including shareholder, IP, and privacy documents) can prevent expensive disputes and delays when you scale.

If you’d like help reviewing or drafting agreements that involve nominal consideration (or figuring out whether you should be using a deed instead), contact Sprintlaw on 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.