Another business has just offered you something you cannot easily get on your own: a co-bid for a large tender, a joint product launch, or a project that needs skills, equipment or customer access you do not have. The opportunity looks good, but before anyone signs anything you have to answer a structural question. Are you forming a joint venture, a partnership, or just engaging the other business as a contractor with a share of the profits? The choice decides who pays if the project loses money, who owns what it creates, and how hard it will be to walk away.
The structures on the table
The three structures you will actually be choosing between are an incorporated joint venture, an unincorporated joint venture, and a contract services agreement with a profit-share element. An incorporated joint venture means both businesses become shareholders in a new company that holds the project's assets, operations and profits. An unincorporated joint venture keeps both businesses separate, with each contributing its own resources under an agreement. A contract services agreement appoints one business as the principal and the other as a subcontractor, with the subcontractor paid partly by a share of the profits.
Two assumptions usually need correcting at this point. First, an unincorporated joint venture is frequently a partnership in law. Under s 1 of the Partnership Act 1892 (NSW), a partnership is simply persons carrying on a business in common with a view to profit, and it exists whether or not you use the word. The High Court made the same point in United Dominions Corporation Ltd v Brian Pty Ltd (1985) 157 CLR 1, where it noted that "joint venture" is often used for what is in substance a partnership for one particular transaction. Second, the Act provides that sharing gross returns does not by itself create a partnership, but receiving a share of the profits is prima facie evidence of one. The structure you think you have chosen may not be the one the law recognises, and the duties that come with it can attach even while you are still negotiating.
Who wears the losses
Where the project's debts fall depends on which structure you choose:
- Incorporated joint venture: the new company is liable for the project's debts and shareholder liability is capped. Under s 516 of the Corporations Act 2001 (Cth), a member of a company limited by shares need not contribute more than the amount, if any, unpaid on their shares. If the project fails, the company can be wound up and, assuming the shares are fully paid, the joint venturers are not required to top up its debts from their own pockets.
- Unincorporated joint venture or partnership: there is no such cap. Partners are jointly liable for all debts and obligations of the firm, and jointly and severally liable for wrongs, meaning a creditor or injured third party can pursue either business for the whole amount. An incorporated limited partnership is a middle path where general partners manage the venture and limited partners enjoy capped liability, but it is a specialised structure with its own registration requirements.
- Contract services arrangement: liability sits in the contract: who indemnifies whom, and up to what cap. That is flexible, but the cap only operates between the two businesses. A cap in the agreement does not stop a customer or third party who dealt with the project from suing either business directly, so indemnities and insurance need to be real rather than boilerplate.
Who's in charge
In an incorporated joint venture, control sits with the company's board and ultimately its shareholders, under the company's constitution and any shareholders' agreement. Directors owe statutory duties under the Corporations Act 2001 (Cth), so decisions about the project must be made in the company's interests rather than to favour one venturer's separate business.
An unincorporated joint venture is typically run by a management committee or a nominated operator, with major decisions requiring the agreement of all participants. That sounds collaborative, but it can produce deadlock, so the agreement needs to say what happens when the parties cannot agree, including who can break a tie and whether either party can exit.
A services agreement gives the principal the right to direct the work, which suits a defined scope. The trap is over-direction. If the subcontractor is in substance an employee doing the principal's core work under its control, the arrangement risks being recharacterised, and s 357 of the Fair Work Act 2009 (Cth) makes it unlawful to misrepresent employment as independent contracting. A profit share does not make the relationship safe from that analysis, so the level of control the principal actually exercises needs to be considered before the paperwork is signed.
How the money works
Profit sharing sounds simple, but profit is rarely defined in the handshake version of the deal. The agreement needs to say what profit means: gross revenue less which costs, whether either party's overheads are deducted, whether each party's own staff time is charged to the venture, and when the profit is calculated and distributed, whether monthly, per milestone or after final payment. A common dispute is whether a party's contribution is repaid before the profit is split, so the treatment of contributions should be agreed in advance, along with who bears losses if the project runs at a deficit.
Tax treatment differs sharply between the structures. A partnership is not taxed as a separate entity: the partnership lodges a return and each partner is assessed on their share of the net income, as the ATO's partnership return instructions make clear. A company pays tax on its own profits, at 25% for base rate entities or 30% otherwise in the 2025-26 income year, and distributions to shareholders are dividends with franking credits attached.
There is also a GST dimension. Businesses carrying on a joint venture can register as a GST joint venture under Division 51 of the GST Act, nominating one participant as the operator to account for GST and issue tax invoices for the venture, which avoids each participant separately invoicing its share. A tax adviser should model the structure before you commit, because the same project profit can produce very different outcomes depending on the vehicle, the GST registration position and the parties' existing tax affairs.
Who owns what
In an incorporated joint venture, assets and intellectual property contributed to or created by the venture belong to the company, not to either business. That is convenient for the project but a real cost: the IP the two of you create is owned by an entity you do not fully control, and extracting it if you leave is a separate transaction that needs to be valued and documented.
In an unincorporated joint venture, each party generally retains ownership of what it contributes and licences it into the venture. That suits collaborations built on each business's existing technology. The agreement needs to specify the licence scope, whether the licence survives the venture, and who owns new IP, particularly where staff from both businesses invent things together.
In a services arrangement, ownership is entirely a matter of drafting: who owns the deliverables, who can use the other party's confidential information and pre-existing IP, and for how long after the arrangement ends. Confidentiality provisions that survive termination matter most here, because the subcontractor will have seen the principal's pricing, customer lists and methods.
How you get out
Ending each structure is different. An incorporated joint venture ends by winding the company up, which means settling debts, liquidating assets and distributing the remainder to shareholders, or by one party selling its shares, which needs a valuation mechanism and usually preemptive rights for the other. An unincorporated joint venture or partnership ends when the project is complete or by mutual agreement, but dissolution still requires reconciling the accounts, collecting and paying debts and dealing with shared assets. Because partners' joint liability attaches to debts incurred while the venture operated, the final accounting matters even after the work has stopped.
A services agreement ends on completion, by notice for convenience, or for breach. The termination clause should cover work in progress and any profit share already earned but not yet paid, because those are the amounts people fight over after the relationship has soured.
Dispute resolution is the clause everyone hopes never to need, but it earns its place. In United Group Rail Services Ltd v Rail Corporation NSW (2009) 74 NSWLR 618, the NSW Court of Appeal held that an obligation to undertake genuine and good faith negotiations is sufficiently certain to be enforceable. The same case shows the drafting trap: the parties' mediation clause named a dispute resolution centre that did not exist, and that clause was void for uncertainty. If the agreement requires mediation, name a real provider and spell out the steps, the timeframes and the governing law.
How an Artificer Legal commercial lawyer helps you choose and commit
A commercial lawyer's first job is to test the characterisation: whether the arrangement you are planning is in law a partnership, a joint venture or a services relationship, because that decides liability, tax and duties before a single clause is negotiated. An Artificer Legal practitioner will stress-test the assumptions the deal is built on, including who is really contributing what, who controls the work and how profit is calculated, and model the downside for your business if the project fails or the other party becomes insolvent, rather than leaving it to be discovered later.
Once the structure is chosen, we draft and negotiate the documents the path needs: the shareholders' or joint venture agreement for an incorporated JV, the joint venture agreement with clear profit-sharing, management and exit mechanics for an unincorporated one, or the services agreement with a properly defined profit share and IP, confidentiality and termination provisions for a contractor arrangement. We also review the dispute resolution clause so that the way out of the arrangement is as clear as the way in.
Why the label on your arrangement does not decide your risk
The takeaway that matters most is to choose the structure for the failure case, not the success case. Nobody signs a collaboration expecting to lose money, but the difference between an incorporated and an unincorporated joint venture is exactly who pays when it does: liability capped at the shares you hold, or joint liability for every debt of the venture. And if you do nothing more than agree to split the profits of a joint project, the law may treat what you have as a partnership whatever you call it, with joint liability and fiduciary duties attached, including duties that can arise before the agreement is signed.
The rest of the article follows from that decision. An incorporated joint venture suits a longer-running venture where both businesses want limited liability and are prepared to give up direct ownership of the assets and IP. An unincorporated joint venture or partnership suits a defined project where each business keeps its own property and accepts joint responsibility for the venture's debts. A contract services agreement with a profit share suits a clear scope of work where one party leads and the other contributes, provided the profit definition, IP, confidentiality and exit terms are written down. Whichever path fits, document the arrangement before work starts, with the profit split, contributions, management, IP, termination and dispute process all in writing, and have a lawyer review the characterisation before you commit.