Legal Contract or Partnership Agreement - Tips for Australian Business

Submitted by Robert Mark | Category: Business | Published on Oct 27, 2011
Partnership agreement is a legally binding contract. Partnership agreement involves two or more co-owners( up to a 20) participating together in a business with an intention to make and share profits.

Partnership Agreement
There are a different business structures that you can opt from when setting up your business. The four main forms of business structures commonly used by small businesses are:


  • Sole trader: an individual trading on their own.
  • Partnership: an association of people or entities carrying on a business together, but not as a company.
  • Trust: an entity that holds property or income for the benefit of others.
  • Company: a legal entity separate from its shareholders.

Every business structure has pros and cons. But you must choose that business structure that best compatible with your business requirements. You are required to investigate each business option carefully before choosing a business structure. Because it is an important decision that can determine the licenses you will need to operate.

Partnership agreement is a legally binding contract. Partnership agreement involves two or more co-owners( up to a 20) participating together in a business with an intention to make and share profits, and an understanding that these co-owners (or partners) act on behalf of each other in the business.

There are number of advantages attribute to partnership such as few government regulation; tax advantages;share risk ; no need to disclose information to public ; inexpensive to set up; more people to share work load and more people to share losses and business risks

In Australia, each state has its own partnership law such as:
• ACT      -      Partnership Act 1963
• NSW    -       Partnership Act 1892
• NT        -      Partnership Act 1997
• QLD     -      Partnership Act 1891
• SA        -      Partnership Act 1891
• TAS     -       Partnership Act 1891

The partnership law clearly explains the rules on how to set up a partnership. The Partnership law does not require that partnership contract must be in written form. Partnership agreement can be made orally. But to avoid the disputes it is good practice that you must enter into a written partnership agreement with your prospective partner. A written partnership form can be used as a point of reference in the case of disputes between the partners. Therefore a written partnership contract is a key document in any partnership.

The partnership agreement can also give all partners a clearer understanding of their rights, responsibilities and obligations as a partner. It is advisable to review your partnership agreement regularly.
The mutual rights and duties of partners, whether ascertained by partnership agreement or defined by the Partnership Act, may be varied by the consent of all the partners, and such consent may be either expressed or inferred from a course of dealing.

Partnership agreement template commonly covers a number of matters, including:

  • the nature and purpose of the business; 
  • capital contributions of each partner (cash as well as non-cash contributions such as time)
  • profit and loss allocation
  • authority of each partner
  • how to admit new partners
  • what happens if a partner dies (sometimes the business is dissolved and liquidated but not always) 
  • how to buy out a partner's share - when one or more partners wish to exit the business, for example 
  • signature authority on the business's bank accounts
  • How conflicts will be resolved.

The major disadvantage of the partnership is unlimited liability of the partners because every partner is jointly and severally liable in the partnership. In the partnership agreement, you and other partner may define the nature of liability but legally each partner liability towards creditor is unlimited. As a partner you are not only liable for your own acts, but also for the acts of your partners, over which you may have little or no control.

No majority of the partners can expel any partner unless a power to do so has been conferred by express agreement between the partners. Where the partnership agreement does not specify the duration of partnership then the other party may retire from the partnership by giving notice to other partner for such purpose. The partnership agreement that does not specify the term of partnership is called partnership at will.

Partnership law dose not allow the partners to carry on the same business as of the partnership without the consent of the other partners. If any partner carries on the same business then he must pay the all profits to the firm that is gained by that business.
The partnership can be dissolved subject to the partnership agreement:

  • If entered into for a fixed term, by the expiration of that term
  • If entered into for a single adventure or undertaking, by the termination of that adventure or undertaking
  • If entered into for an undefined time, by any partner giving notice to the other or others of the partner’s intention to dissolve the partnership.


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Name: Robert Mark

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