In short
A partnership agreement is a contract between two or more people carrying on business together that sets profit shares, decision-making, capital contributions and exit terms. Without one, the relevant state Partnership Act (for example the Partnership Act 1892 (NSW) or Partnership Act 1958 (Vic)) fills the gaps with default rules that rarely match what the partners actually intended — most notably equal profit shares regardless of contribution and dissolution on a partner's exit. A written agreement displaces those defaults with terms the partners have actually chosen.
Why the statutory defaults are a poor substitute for a written agreement
Each state's Partnership Act supplies a set of default rules that apply automatically to any partnership that hasn't contracted around them — equal sharing of profits and losses irrespective of capital contributed, unanimous consent for new partners, and automatic dissolution of the entire partnership on the death, bankruptcy or retirement of any one partner. These defaults were written for simple two-person trading partnerships and rarely reflect a modern professional services or trading partnership where contributions, hours and risk differ significantly between partners. A written agreement lets the partners set their own profit-sharing formula, admission and exit process, and — critically — continuation rather than automatic dissolution when one partner leaves.
Capital contributions, profit shares and drawings
The agreement should record what each partner has contributed or agreed to contribute — cash, assets, or sweat equity — and whether contributions are treated as loans to the partnership (repayable) or capital (only returned on winding up or exit). Profit and loss shares don't need to mirror capital contributions, but if they don't, the agreement should say so expressly rather than defaulting to equal shares under the Act. We also fix drawing arrangements — regular partner drawings against expected profit, reconciled at year end — since disputes over drawings taken without authority are a common source of partnership breakdown.
Decision-making and management authority
Under the default rules every partner has authority to bind the partnership in the ordinary course of its business, which is a significant exposure where partners don't fully trust each other's judgment or where one partner is largely passive. We set out which decisions require unanimous partner consent (borrowing above a threshold, admitting a new partner, entering contracts above a set value), which can be made by a managing partner alone, and how disagreements on day-to-day matters are resolved — usually by majority vote weighted by an agreed formula rather than by headcount alone.
Admission, retirement and expulsion of partners
The agreement fixes the process for admitting a new partner (existing partner approval, buy-in contribution, and confirmation the new partner is bound by the existing agreement) and for a partner retiring voluntarily, including notice periods and how their share is valued and paid out — often over an agreed period rather than as a lump sum, to protect the partnership's cash flow. Expulsion clauses need an objective trigger (serious misconduct, persistent breach, incapacity) and a fair process, because a partner expelled without proper grounds or process can bring a claim that the expulsion itself was wrongful, independent of any underlying misconduct.
Restraints, competing interests and use of the partnership name
We include restraint of trade clauses limiting a departing partner from soliciting clients, staff or suppliers for a defined period and geographic area, drafted to be no wider than reasonably necessary to protect the partnership's legitimate interests — restraints that go further than necessary risk being found unenforceable by a court. The agreement also deals with whether a departing partner can continue trading under a name similar to the partnership's, and confirms that partnership IP (client lists, methodologies, trade marks) stays with the continuing partnership rather than leaving with any individual partner.
Dissolution, continuation and dispute resolution
Rather than accepting the statutory default that a partnership automatically dissolves when a partner dies, retires or becomes bankrupt, we draft a continuation clause so the remaining partners can carry on the business under the existing agreement, buying out the departing partner's interest under an agreed valuation mechanism. We also set out a graduated dispute resolution process — negotiation, then mediation, then arbitration or a specific buy-out mechanism — so a disagreement between partners doesn't have to end in an application to wind up the entire partnership under the Act.
What the fixed fee covers
- Drafting tailored to your state's Partnership Act to override unsuitable default rules
- Profit share, capital contribution and drawings mechanisms
- Admission, retirement and expulsion procedures with valuation methodology
- Restraint of trade clauses calibrated to be enforceable
- Continuation clause to avoid automatic dissolution on partner exit
- Dispute resolution and buy-out mechanism
Mistakes we see
- Trading for years on a handshake and relying on the Act's default equal-profit rule
- No continuation clause, so the partnership technically dissolves when one partner leaves
- Restraints drafted too broadly to survive judicial scrutiny
- No agreed valuation method for a departing partner's share, leading to disputes at exit
- Confusing partner drawings with profit entitlement, causing cash flow disputes
Who this is for
- Professional services partnerships (accounting, legal, medical, consulting)
- Trading partnerships between two or more individuals
- Family partnerships operating a business together
- Partnerships formalising an existing informal arrangement
Frequently asked questions
- Do we need a written partnership agreement if we're already operating as partners?
- Yes — without one, the default rules in your state's Partnership Act apply, which typically means equal profit shares regardless of actual contribution and automatic dissolution if a partner leaves. A written agreement lets you set terms that actually reflect what the partners agreed.
- Can partners share profits unequally?
- Yes, provided the agreement says so. The default rule under the Partnership Acts is equal sharing, so any different arrangement — based on capital contributed, hours worked or another formula — needs to be recorded expressly.
- What happens if one partner wants to leave?
- Without a continuation clause, a partner's retirement can technically dissolve the partnership under the default rules. We draft the agreement so the remaining partners can continue trading and buy out the departing partner's share under an agreed valuation method instead.
- Are restraint of trade clauses enforceable against a departing partner?
- They can be, provided the restraint is no broader than reasonably necessary to protect the partnership's legitimate business interests in scope, duration and geography. Overly broad restraints risk being struck down, so we calibrate them to your specific business.
- Is a partnership agreement the same as a shareholders agreement?
- No. A partnership agreement governs an unincorporated partnership under the state Partnership Acts, while a shareholders agreement governs shareholders in an incorporated company under the Corporations Act 2001 (Cth). The structures carry different liability, tax and governance consequences, which we can talk through if you're deciding between the two.
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