Partnership Agreement Template For Two Founders

Do we really need a partnership agreement template before we've even made our first sale?

Yes, if you're starting a business with one other person and you're not setting up a company yet, a written partnership agreement is one of the most useful things you can put in place early.

It doesn't have to be complicated. The point is to get clear on the practical things that usually cause tension later: who is putting in money, who owns the IP, who can make decisions, how profits are shared and what happens if one of you wants out or you need a partnership dissolution agreement.

Here's how to think about a partnership agreement for two founders in Australia, and what your document should actually cover before you start trading.

Do Two Founders Need A Partnership Agreement?

Yes, two founders should have a partnership agreement if you're carrying on a business together for profit and you haven't set up a company or another structure.

In Australia, a partnership can exist even if you never sign a formal document. If you and another person are running a business together, sharing profits and acting as a team, the law may treat you as partners. Each state and territory has its own Partnership Act, and those laws set out default rules that can apply if you don't agree on your own terms.

The problem is that default rules are rarely tailored to your business. For example, depending on the position in your state or territory, you may find that profits and losses are shared equally, even if one person contributed more money or is doing more of the work.

A written agreement lets you choose your own rules. It can cover things like:

• Who owns what percentage of the business
• How much cash, equipment or unpaid work each person is contributing
• Who can sign contracts or spend business money
• How you split profits and losses
• Who owns the brand, website, software, designs or content you create
• What happens if one of you leaves, becomes unable to work or wants to sell their share

Without a written agreement, a disagreement can become personal very quickly. You may also struggle to show banks, suppliers, landlords or future investors how the business is actually controlled.

Is A Partnership The Right Structure Before A Company?

It depends on your goals, risk level and budget, but a partnership can be a sensible early structure for two founders who want to test an idea before setting up a company.

A partnership is usually simpler than a company. You don't get an ACN because you're not registering a company with ASIC. Instead, the partnership can apply for an ABN, and the ABN application itself is free. If you're trading under a business name that isn't just the partners' personal names, you'll usually need to register that business name with ASIC and keep it renewed.

The main trade-off is liability. A partnership generally isn't a separate legal entity in the same way a company is. That means you and your partner can be personally responsible for business debts and obligations. In many cases, one partner can also bind the partnership, meaning their contract with a supplier or customer can create obligations for both of you.

That doesn't mean a partnership is always wrong. It just means your agreement needs to be practical about risk.

When A Partnership Can Work Well

• You're testing a small business idea with one trusted person
• You don't need outside investment yet
• Your startup costs are modest
• You want a simpler setup while you validate demand
• You both understand the personal liability risk

When You Should Pause And Get Advice

• You'll sign a commercial lease or take on significant debt
• You're building valuable IP, such as software or a brand
• You plan to raise capital from investors
• You need clear founder equity, vesting arrangements or a founders term sheet
• Your business has higher safety, regulatory or customer risk

If you're likely to convert to a company later, your partnership agreement can also set out how that transition will work. For example, it can say how assets, IP, customer contracts and business names will move into the new company, including any business sale agreement terms.

What Should A Partnership Agreement Template Include?

A partnership agreement template should cover the business relationship from the first dollar contributed to the day someone exits.

A generic template can be a useful starting point, but it shouldn't be treated as a finished legal document. A lawyer should tailor it to your business, your state or territory, your industry and the actual deal between you.

Here is a practical outline you can use to prepare your instructions.

1. Partners And Business Details: Write the full legal names of both partners, the business name, ABN details if you have them and the business address.
2. Purpose Of The Partnership: Describe what the business will do, including any products, services, online activities or locations.
3. Start Date And Term: State when the partnership starts and whether it continues until ended or runs for a set project or period.
4. Initial Contributions: Record what each partner contributes, such as cash, equipment, stock, premises, contacts, licences or unpaid work.
5. Ownership And Profit Share: Set out each partner's percentage share and whether profits, losses and drawings follow that percentage.
6. Roles And Time Commitment: Explain who is responsible for operations, sales, finance, marketing, product, hiring and admin, and how many days or hours each person is expected to contribute.
7. Decision-Making: List ordinary decisions one partner can make alone and major decisions that need both partners to agree.
8. Banking And Spending Limits: State who can access accounts, approve payments, use business cards and commit the business to expenses.
9. Intellectual Property: Confirm who owns business IP and require each partner to assign relevant IP into the partnership or later into a company if needed.
10. Confidentiality: Protect customer lists, pricing, processes, supplier information, product ideas and financial information.
11. Disputes: Set a clear process for dealing with disagreements before they damage the business.
12. Exit, Buyout And Dissolution: Explain how someone can leave, how their share is valued and what happens to debts, assets and customers.

This structure works for many early businesses, from a two-person consulting practice to a small product startup. The detail inside each clause is where the document becomes useful.

How Do We Deal With Money, Roles And Decision-Making?

You should deal with money, roles and decision-making in specific numbers and clear rules, not broad statements like we'll both contribute fairly.

This is where many founder disputes start. One person feels like they're doing more work. The other person feels like they took more financial risk. Neither of you is necessarily wrong, but vague expectations make it harder to solve.

A Worked Example

Say Mia and Jordan start a small online homewares business in Melbourne. Mia contributes $20,000 in cash for stock and website development. Jordan contributes $5,000 in cash and agrees to manage suppliers, customer service and social media for 25 hours per week.

They could agree that:

• Mia owns 60% and Jordan owns 40% of the partnership
• Profits are distributed 60/40 after expenses and a retained cash buffer are agreed
• Neither partner can spend more than $2,000 on one item without both partners approving it
• Any loan, lease, contractor hire or new product line needs unanimous approval
• Jordan's weekly time commitment is recognised as part of the commercial deal, even though Mia contributed more cash

Now compare that with a one-line agreement saying profits will be shared fairly. If the business makes $80,000 profit in year one, the difference between a 50/50 split and a 60/40 split is $8,000. That's a real dispute waiting to happen.

Decisions To Split Into Categories

Your agreement should separate day-to-day decisions from major decisions.

• Day-To-Day Decisions: Ordering stock, sending invoices, updating the website, posting marketing content and dealing with ordinary customer issues.
• Financial Decisions: Spending limits, payment approvals, bank account access, credit cards and who can approve refunds or discounts.
• Major Decisions: Changing the business model, hiring staff, borrowing money, signing a lease, admitting a new partner, selling assets or closing the business.

If you expect to hire staff, you'll also need to think about Fair Work Act 2009 obligations, awards, employment contracts and workplace policies from the employer side. Your partnership agreement won't replace those documents, but it can say who is responsible for getting them sorted.

Who Owns The IP In A Startup Partnership?

Your partnership agreement should say that business IP belongs to the business, not automatically to whichever partner happened to create it.

This matters even for a very early startup. Your IP might include your business name, logo, website copy, product designs, software code, photography, customer materials, supplier lists, processes, pitch decks and social media content.

Copyright can be especially tricky. In many cases, copyright is owned by the creator unless it's properly assigned or an exception applies. If one founder designs the logo, writes the code or creates your course content before there's a clear agreement, you may later disagree about whether that IP belongs to the partnership, the individual founder or a new company you set up later.

Your agreement should deal with:

• IP created before the partnership starts and whether it's licensed or assigned into the business
• IP created during the partnership and who owns it
• Whether each partner must sign further documents to transfer IP if you later set up a company
• Use of confidential information after a partner leaves
• Who can register trade marks through IP Australia
• What happens to domain names, social media handles and customer data if the partnership ends

Trade marks are separate from business names. Registering a business name with ASIC doesn't give you ownership of the brand. If your name, logo or product brand is valuable, you should consider whether a trade mark application through IP Australia makes sense.

You should also think about privacy early if you're collecting customer information. The Privacy Act 1988 and the Australian Privacy Principles may apply depending on your business, turnover and the type of information you handle. Even if you're not legally required to have a full privacy program yet, customers and platforms often expect clear privacy terms.

How Do We Write Exit Clauses For Two Partners?

Your exit clauses should explain exactly how a partner can leave, how their interest is valued and what happens to customers, debts and IP afterwards.

With two founders, exits need extra care because there isn't a third person to break deadlocks. If one partner leaves, the whole business may need to be bought out, transferred into another structure or wound up.

Start with notice. There isn't one universal notice period that fits every partnership, so choose a period that suits your business. For example, 30 days might work for a small consulting business with low overheads, while 90 days may be more sensible if you hold stock, have ongoing client projects or rely heavily on one partner's skills.

Your agreement should cover these exit situations:

• One partner resigns voluntarily or triggers a partner buyout
• One partner stops contributing time or money
• A partner seriously breaches the agreement
• A partner becomes ill or unable to work for a long period
• A partner dies
• Both partners agree to sell or close the business
• You decide to move the business into a company structure

Valuation is another big one. You might use an agreed formula, an independent accountant, a fixed process for valuing stock and assets, or a method based on revenue or profit. The right approach depends on your business model, so this is worth tailoring.

Common Mistakes To Avoid

• Letting a departing partner keep using the same customer list, brand or social accounts without limits
• Forgetting to deal with business debts and guarantees
• Having no process if both partners want to buy out the other
• Using a restraint clause that's too broad to be useful
• Failing to update supplier, customer and platform accounts after an exit

If something has already gone wrong, start by keeping clear records. Save messages, invoices, bank records, contracts, IP files and notes of decisions. Then check what was agreed in writing, even if it's only emails or messages, and get advice before you make big moves like locking the other person out of accounts or transferring assets.

How Much Does A Partnership Agreement Cost?

The cost depends on how simple your business is, how much tailoring you need and whether you're using a free template, an online fixed-fee legal service or a traditional law firm billing by the hour.

A free partnership agreement template can help you see the usual topics, but it may not deal properly with your IP, exits, personal liability, decision-making or your state-based partnership rules. It also won't ask follow-up questions when your situation doesn't fit the template.

An online fixed-fee legal service can be a good middle ground if you want a lawyer-drafted document and clarity on cost before work starts. The main things to check are whether the service includes a consultation, custom drafting, revisions and practical explanations of the clauses.

A traditional firm billing by the hour may suit a more complex matter, especially if there are related documents such as a commercial lease, heads of agreement for a business sale, finance documents or a planned company restructure. The trade-off is that the final cost can be harder to predict unless you agree on scope early.

What drives cost is usually:

• Whether there are only two partners or more people involved
• How valuable or complex the IP is
• Whether contributions are equal or uneven
• Whether you need buyout, valuation or restraint clauses
• Whether the partnership is temporary or intended to become a company
• Whether there are related documents, such as contractor agreements, terms and conditions or a privacy policy

Before you pay for drafting, prepare the key commercial details: names, contributions, ownership percentages, roles, decision rules and exit preferences. You'll get a better document and a smoother process.

Key Takeaways

• A partnership can exist even without a signed document if you and another person run a business together for profit.
• A written partnership agreement helps you set your own rules for money, roles, decisions, IP and exits.
• For two founders, deadlocks and exits need special attention because there isn't a third person to break a tie.
• Business names, trade marks and copyright are different issues, so your agreement should deal with IP clearly.
• A template can be a helpful starting point, but it works best when a lawyer tailors it to your business and plans.

If you'd like help with your partnership agreement, founder IP clauses, decision-making rules or exit terms, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.