Partnership Agreement

What is a Partnership Agreement?

A Partnership Agreement is a legal agreement between two or more parties who want to form a partnership business structure.

A Partnership Agreement governs all of the important terms of the working relationship – don’t start your business without one!

Some of the most important terms of the agreement include each party’s contributions, decision-making, share of profits, and winding up.

Who is this Partnership Agreement template for?

• Partnerships
• People wanting to formalise their business relationship
• Two or more parties working together
• Suitable for all Australian states and territories

What clauses does the template include?

Our Partnership Agreement template covers everything you need:

• Partnership details – details for each partner and the partnership name
• Duration and Termination of the Partnership – start date and notice period required before dissolving the partnership
• Labour Contribution – how much labour each partner will contribute (e.g. full-time, part-time)
• Decision Making – how the partners can make decisions (e.g. unanimous vote)
• Financial Matters – capital contribution, drawings, profit split, wages and bookkeeping
• Insurance – requirements for insurance
• Restrictions on the parties – conditions around entering contracts, borrowing money and incurring debts for the partnership
• Costs and Expenses – how the partners will split expenses
• Winding Up – conditions for winding up the partnership (e.g. if one partner wants to leave)
• Dispute Resolution – process to deal with a dispute
• General – standard contract clauses such as Assignment, Severance, Entire Agreement, Waiver and Governing Law

What is a Partnership business structure?

A partnership is a group of people who conduct a business together and distribute income or losses between themselves. For example, if you and a friend or family member decide to set up a business together, you might operate it as a partnership.

Partnerships are relatively easy and inexpensive to set up and operate. The partners share income, losses and control of the business.

Key features of a partnership:

 require a separate tax file number (TFN)

 must apply for an Australian business number (ABN) and use it for all business dealings

share control and management of the business

 don’t pay income tax on the income earned – each partner is taxed separately on their share of the partnership income

require a partnership tax return to be lodged with the Australian Taxation Office (ATO) each year

require each partner to be responsible for their own superannuation arrangements

 must register for GST if turnover is $75,000 or more

Do I need a contract?

Yep. No doubt about it. What will you do if something goes wrong?

A contract protects everyone involved.

It’s not about big legal words and getting the upper hand on your partner. It’s relationship insurance. A legally binding contract does the boring legal leg work, manages expectations, and provides certainty. That way, you can focus on what you want to achieve in your business.

Do I need a Partnership Agreement for a one-off project?

No, a Partnership Agreement is really designed for an ongoing business relationship where two or more people formalise the terms of their partnership business structure into an agreement.

For a one-off project, you should look at a Collaboration Agreement instead.

Does the partnership name have to be our real names?

No, you can choose a different partnership name if you like.

You may choose to register a business name to use as your trading name.

Otherwise, you can use a combination of the partners’ names (e.g. John Smith & Jane Smith)

Negotiating the key terms of the Partnership Agreement

Before you kick off your partnership, you should discuss what each party is bringing to the table – including financial contributions, equipment and resources – and how you will manage the partnership once it’s established.

You can use our Partnership Agreement template to guide you on some of the things you can discuss before you get started.

Ending the Agreement

We have included a winding-up clause in the contract, which stipulates the conditions for winding up the partnership,

Generally, when a partner no longer wants to be involved with the partnership, they must provide formal written notice to the other partner(s) of their intention to dissolve the partnership.

If notice of partnership dissolution is given, the partners need to arrange for a valuation of the partnership assets and agree to a split of partnership assets’ total value.

What are some common issues with partnerships?

Here are some issues that often come up in partnerships:

1. Someone who isn’t pulling their weight in the partnership is demanding an equal share of the profit
2. One of the partners wants to use their work in another project
3. Another partner doesn’t want anything to do with you anymore and wants their work taken out
4. A third party sues you over something that one of the partners contributed to the partnership

A Partnership Agreement will help you to avoid these issues.

How much will each partner get paid?

You should negotiate before you start to work out how and when you will be paid and what the profit split will be, You could split everything 50/50, or you could choose a different percentage split.

Factors that could influence remuneration include the resources each party contributes (i.e. how much they put in!), how much time they spend on the partnership, or how much they sell (if you are working on a commission structure).