Partnership Agreement
A partnership agreement governs the relationship between business partners — defining contributions, profit sharing, decision-making rights, and exit provisions.
What is a Partnership Agreement?
A partnership agreement is a contract between two or more individuals or businesses who are operating a business together as partners. It defines each partner's capital contribution, profit and loss sharing ratio, decision-making rights, responsibilities, and what happens if the partnership dissolves or a partner exits.
In Australia, if partners carry on business with a view to profit and there is no written agreement, the Partnership Act (in the relevant state or territory) applies by default. Default provisions are rarely optimal — they require unanimous consent for many decisions and may not reflect the partners' actual intentions about profit sharing or exit.
When do you need a Partnership Agreement?
- ✓When two or more people are starting a business together as a partnership
- ✓When a new partner is being admitted to an existing partnership
- ✓When an existing partnership has been operating informally and needs to be formalised
- ✓Before the partnership makes a significant capital investment or takes on debt
Key provisions to include
Partner Contributions
Cash, assets, IP, or services each partner contributes to the partnership.
Profit & Loss Sharing
How profits and losses are allocated between partners — equally or in a specified ratio.
Decision-Making
Which decisions require unanimous consent and which can be made by majority or designated partners.
Partner Roles
Each partner's responsibilities, authority, and time commitment to the business.
Drawing Rights
How and when partners can withdraw funds from the business.
Admission of New Partners
Process for admitting new partners, including consent requirements and valuation.
Exit & Dissolution
How a partner can exit the partnership and how the business is valued on exit.
Common mistakes to avoid
Operating a partnership without a written agreement — default partnership law provisions rarely reflect the partners' actual intentions
Not addressing what happens when a partner wants to leave — exit provisions are one of the most commonly disputed areas in partnerships
Not specifying decision-making authority, leading to deadlocks on routine business decisions
Frequently asked questions
Is a partnership the same as a company in Australia?
No. A partnership is not a separate legal entity — the partners are jointly liable for the debts and obligations of the partnership, including each other's actions in the course of the partnership. A company (Pty Ltd) is a separate legal entity with limited liability for shareholders. Most businesses formalise as a company rather than a partnership for this reason.
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