Joint ventures and business partnerships
Going into business with someone can double your skills, contacts and capital. It can also end a friendship and a business if expectations aren't written down. This guide explains the main ways to work together and what your agreement should cover, including a shareholders agreement if you co-own a company.
In short
- Decide first what you're actually doing together - an ongoing business, a single project, or a looser collaboration.
- In a general partnership, each partner can be personally liable for the business's debts.
- A joint venture is for a specific project; it's governed by a legally binding joint venture agreement.
- If you co-own a company, a shareholders agreement sets out how decisions are made, what happens if someone leaves, and how disputes are resolved.
- Write the agreement while everyone gets along, and have a lawyer review it before you sign.
Should you go into business with someone?
Working with others makes sense when they bring something you can’t easily get another way: skills, customers, capital, equipment, premises or a licence. It’s riskier when the main reason is that it feels less lonely, or that you’ve always wanted to work with a friend.
Before you commit, talk honestly about:
- Goals: a lifestyle business or rapid growth? Sell in five years or run it for life?
- Money: how much each person will put in, and how much each needs to take out to live.
- Time and roles: who does what, and what happens if one person works much more than the other.
- Decisions: who has the final say on what.
- Risk: how each person feels about debt, guarantees and personal assets.
- The exit: what happens if someone wants out, falls ill, dies, or the business fails.
If you can’t agree on these now, you’re unlikely to agree when the pressure is on.
Ways to work together
| Arrangement | What it is | Liability | Typically used for |
|---|---|---|---|
| Informal collaboration | Working together on referrals or shared marketing, each running your own business | Each business is responsible for itself | Referral partners, co-marketing |
| Joint venture | Two or more people or businesses working together on a specific project, not an ongoing business | Set out in the joint venture agreement | A tender, a development, a product launch, a new market |
| General partnership | Two or more people running a business together and sharing income or losses | Each partner has unlimited liability for the partnership’s debts | Small professional and trade businesses |
| Limited partnership | At least one general partner who manages it, plus limited partners whose liability is capped at what they put in | General partners unlimited; limited partners limited | Investment arrangements; must be registered with your state or territory |
| Company with several shareholders | A separate legal entity that the co-owners hold shares in | Generally limited for shareholders, but directors have duties and guarantees can apply | Businesses planning to grow, take on investors or employ |
Each choice has different tax, legal and cost consequences. See Sole trader, partnership, company or trust?, and get advice from an accountant and a lawyer before you choose.
Partnerships
A partnership is two or more people who run a business together and share its income or losses. business.gov.au notes that partnerships are relatively easy and cheap to set up, and that a partnership needs its own ABN and tax file number. Each state and territory has its own partnership laws.
The biggest thing to understand is liability. In a general partnership, each partner is responsible for the partnership’s debts, not just their share. If your partner signs a contract for the business, you can be responsible too.
What a partnership agreement covers
You don’t have to have a written partnership agreement, but business.gov.au says it sets clear expectations and helps avoid disputes, and suggests a lawyer reviews it. It lists these topics:
- Business and partner details, start date and the purpose of the business
- Ownership and contributions: how much each partner puts in and owns
- Profit and loss sharing
- Roles and responsibilities
- Intellectual property: who owns what existed before, and what’s created during the partnership
- Making decisions, including whether major decisions need everyone’s agreement
- Dispute resolution, and what happens if that process fails
- Adding or removing partners, including if a partner leaves or dies
- Ending the partnership and dividing what’s left
Joint ventures
A joint venture is two or more people, companies or organisations working together on a specific purpose or project, rather than as an ongoing business. business.gov.au gives examples such as research and development, creating a new product, providing a new service or expanding into new markets.
Joint ventures can be structured in different ways: a contract between the parties (an unincorporated joint venture) or a new company that the parties own together. The structure affects liability, tax and how profits flow, so get advice before you set one up.
What a joint venture agreement covers
A joint venture agreement is legally binding. business.gov.au says it typically includes:
- The structure, governance and each party’s obligations
- Financial contributions
- How profits and losses are divided
- Ownership of intellectual property
- How disagreements are resolved
- How a party can leave, and how the agreement ends
Also think about: what each party can and can’t do separately while the venture runs (for example, competing for the same customers), confidentiality, who deals with customers, and who owns the customer relationships and data afterwards.
Co-owning a company: shareholders agreements
If you and your business partners set up a company, you each become shareholders (and often directors too). ASIC explains that shareholders’ rights come from the Corporations Act and, depending on the company, from the replaceable rules in the Act, the company’s constitution, and a shareholders agreement if it has one.
The replaceable rules and a standard constitution cover the basics of running a company. They often don’t cover the things that cause disputes between co-owners in a small business. A shareholders agreement is a contract between the shareholders that deals with them.
What a shareholders agreement usually covers
- Who owns what: shares held by each person, and any different classes of shares
- Contributions: money, assets, time and skills each person brings
- Roles: who are directors, who works in the business, and on what terms
- Decisions: which decisions need unanimous or special majority approval (for example borrowing, selling major assets, issuing new shares, hiring family members)
- Funding: what happens if the company needs more money, and whether shareholders must contribute
- Dividends: the approach to paying profits out versus keeping them in the business
- Leaving: what happens to someone’s shares if they want to leave, stop working in the business, become ill or die; how the shares are valued; and who can buy them first
- Selling: “tag-along” and “drag-along” rules for when someone wants to sell the whole business
- New shareholders: how new investors or staff can be brought in, and how that affects existing owners
- Restraints: limits on competing with the company or poaching staff and clients after leaving
- Deadlock and disputes: what happens if owners with equal shares can’t agree
- Confidentiality and intellectual property
A shareholders agreement works alongside the company’s constitution, so the two need to be consistent. A lawyer can prepare both together. See Contracts and legal basics.
Protecting yourself and the relationship
- Put it in writing before you start. It’s much easier to agree on “what if” while everyone is optimistic.
- Get your own advice. Each party may want their own lawyer, especially if contributions or ownership are unequal.
- Check each other out. Look at credit history, past businesses and references, as you would with any major business decision.
- Keep business finances transparent. Shared access to accounts and regular financial reports avoid suspicion.
- Meet regularly to review how things are going, not just when there’s a problem.
- Know about personal guarantees. Lenders and landlords often ask each owner to guarantee the business’s debts. See Business credit cards, credit scores and managing debt.
When it ends
Every partnership ends one day: through retirement, sale, a falling-out or success that changes everyone’s goals. business.gov.au’s guide to dissolving a partnership covers the steps. It suggests a written dissolution agreement covering the end date, how assets and debts are divided, and who takes over clients, contracts, employees, intellectual property and the business name. Your state or territory’s Partnership Act applies to anything your agreements don’t cover. If you’re in a dispute, the Australian Small Business and Family Enterprise Ombudsman has information on resolving disputes between businesses, and mediation is usually much cheaper than court.