You have found the person you want to build with. You have agreed on the product, the customers and roughly who does what, and the arrangement has reached the point where it has to become formal: a bank account needs signing authority, a supplier wants to know who it is contracting with, and someone has raised the question of structure. The choice you make over the next few weeks sets who is personally exposed if the business fails, how profits are taxed, who can make decisions when you disagree, and how hard it is to bring in the next person or to leave. It is a small set of comparisons rather than a mystery, and this guide walks you through them.
The structures on the table
"Business partners" is a relationship, not a legal category. In Australia, the people you call partners will usually be doing one of three things: carrying on a business together directly as a partnership, owning shares in a company together, or collaborating on a defined project through a joint venture while each keeping their own business separate.
- Partnership: two or more people carry on a business in common with a view to profit. That is the statutory definition in s 1 of the Partnership Act 1892 (NSW). A partnership can exist on a handshake and no registration is required, but the default rules of the Act then fill the gaps.
- Company: a separate legal entity with the legal capacity of an individual under s 124 of the Corporations Act 2001 (Cth). You and your co-founder become shareholders and usually directors. The company, not you personally, enters contracts and owes debts.
- Joint venture: two or more businesses work together on a defined project under a joint venture agreement. An unincorporated joint venture is a contract, not an entity, and each party stays in its own business. A joint venture can also be run through a company.
Two things are worth flagging before you compare. First, you can be in a partnership without meaning to be. If you and another person carry on a business together with a view to profit, the law treats you as partners even if you never signed anything, and the default rules apply. Second, the options are not as distinct as they look. The moment you incorporate, the relationship between the members is not a partnership for the purposes of the Act, because s 1(2) of the Partnership Act 1892 (NSW) excludes the members of a company. "We're partners" describes how you work; the structure decides the legal consequences.
What to weigh up before you choose
Six factors do most of the work. The first two, liability and tax, are the ones people usually think about. The next three, control, flexibility and running cost, decide how the relationship feels day to day. The last one, the shape of the venture, tells you whether you are even comparing the right options.
Who wears the risk if things go wrong
Liability is the biggest difference between the structures, and the factor most often underestimated.
In a partnership, every partner is jointly liable for the debts and obligations of the firm under s 9 of the Partnership Act 1892 (NSW), and jointly and severally liable for wrongs committed in the course of the business under s 12. Practically, a creditor the partnership cannot pay can pursue any one of you for the whole amount. The partner who pays can seek contribution from the others, but the exposure is personal: your house, your savings and your other assets sit in front of the business's debts.
- Partnership: personal, unlimited liability for every partner. One partner's mistake can expose the others.
- Company: the company owes the debts. Members of a company limited by shares cannot be required to contribute more than the amount, if any, unpaid on their shares under s 516 of the Corporations Act 2001 (Cth). Directors still owe duties and can be personally liable in some situations, and lenders commonly ask founders for personal guarantees, which brings personal exposure back through the back door.
- Joint venture: each party remains liable for its own debts and for what it accepts under the joint venture agreement. Ring-fencing the project's risk from each party's wider business is usually the point.
How the tax lands
A partnership does not pay income tax. It lodges a partnership tax return each year, and each partner is taxed on their share of the profit at their own marginal rate. That is simple when both partners have similar incomes, and less attractive when one of you is on a much higher rate than the other.
A company pays tax on its own profits. For 2024-25 the company tax rate is 25% for a base rate entity and 30% for everything else. A company is a base rate entity when its aggregated turnover is under $50 million and 80% or less of its assessable income is base rate entity passive income such as rent, interest and royalties, a test the ATO re-checks every year. Profits taken out as dividends may carry franking credits so the same income is not taxed twice. The trade-off is that profit left in the company is taxed at the company rate, and there are rules about getting it out.
Tax should not be the deciding factor on its own, but it should be modelled with your actual numbers. "Partnerships are simpler" and "companies pay less" are both true in different situations, and which one applies to you depends on how much profit you intend to retain.
Who calls the shots when you disagree
The legislation supplies default rules for both structures, and they operate whenever your agreement is silent. This is where people get surprised.
In a partnership, the defaults in s 24 of the Partnership Act 1892 (NSW) include equal shares of capital and profits with equal contributions to losses, every partner taking part in management, ordinary differences decided by majority, no change to the nature of the business without all partners consenting, and no new partner introduced without everyone's consent. For two equal partners, an ordinary disagreement is a deadlock by default, because the majority is one vote each. With three partners, one of them can be outvoted on ordinary matters.
A company works differently. Its internal management is governed by replaceable rules in the Act, a constitution, or a combination of both under s 134 of the Corporations Act 2001 (Cth). The directors run the business day to day, while shareholders vote on a narrower set of matters such as appointing directors and changes to share capital. A shareholders agreement can then set the thresholds you actually want, for example 75% approval for major decisions or a deadlock mechanism.
- Partnership: everyone manages by default; ordinary decisions by majority; fundamental changes need all partners.
- Company: directors manage; shareholders vote on structural matters; the constitution and shareholders agreement set the thresholds.
- Joint venture: the agreement defines who decides what on the project; everything else stays with each party.
Bringing people in and letting them out
If the plan involves growing the team, raising outside capital or one day selling, the company is more flexible. Shares can be issued and transferred, options can be granted, and a shareholders agreement can include founder vesting, pre-emption rights and buy-out mechanisms. A new investor joins under the existing rules rather than renegotiating the whole relationship.
A partnership is harder to change. No new partner can be introduced without the consent of all existing partners under s 24(7) of the Partnership Act 1892 (NSW). When a partner wants out, the default is dissolution of the partnership and a settlement of accounts, which can mean winding up a working business unless your partnership agreement provides a buy-out and a valuation method. The same is true if you want to remove a non-performing partner: without agreed mechanisms, you are negotiating an exit with someone who has no obligation to make it easy.
A joint venture sits between the two. Contributions and profit shares are negotiated project by project, and bringing in a new participant is a renegotiation, but the parties do not need to restructure their own businesses to do it.
What it costs to run
The paperwork burden is very different, and it is worth pricing before you choose.
- Partnership: no registration with ASIC. You need an ABN and a tax file number, GST registration once annual turnover reaches $75,000, and a partnership tax return each year. That is close to the whole compliance list.
- Company: registration with ASIC to get an ACN, plus an annual review every year, on which you check your company's details, pay the annual review fee and pass a solvency resolution. Add a company tax return and ongoing record-keeping for directors' duties. The fees are modest at small scale, but the list is longer and it never goes away.
If neither of you is good at administration, budget for an accountant and possibly a bookkeeper from day one. That recurring cost belongs in the comparison.
The shape of the venture
The last factor is the lifespan of the relationship. A partnership or a company suits a business you intend to run together indefinitely, where you are pooling your working lives. A joint venture suits a defined project with an end date: two builders on one development, a software firm and a distributor on one product line.
If the relationship is really "we work together on everything from here on", a joint venture is the wrong tool, because it has to be renegotiated for every new project. If it is "we collaborate on this one job", a partnership or company is overkill, because it wraps two whole businesses into one legal relationship with all the liability that brings. Getting this factor wrong is how people end up with a joint venture agreement trying to run an ongoing business, or a partnership that should have been a one-project deal.
Where an Artificer Legal lawyer comes in
The structure decision is only the first layer, and most of the value in getting advice sits in the layer underneath. An Artificer Legal practitioner would help you make and act on the call in four ways.
First, stress-test the assumptions driving your choice. Most founders pick a structure because of something they heard about tax or liability, and the assumption is often incomplete. A lawyer will check your actual situation: whether a personal guarantee is going to be required anyway, whether the base rate entity test really applies to your company, and whether the liability difference you are relying on holds up in practice.
Second, model the downside. The question is not just which structure works while you get along, but what happens when one of you stops contributing, wants out or dies. Working through those scenarios before you commit is what turns a structure choice into a workable one.
Third, draft the documents the chosen path needs: a partnership agreement, or a shareholders agreement and constitution, setting profit shares, decision thresholds, deadlock paths, buy-out mechanisms, restraints and confidentiality. The default rules in the legislation apply to whatever you do not agree, so the documents are how you opt out of the defaults you do not want.
Fourth, tell you which option is not actually available. Some structures people assume they can choose have preconditions, and some arrangements collapse two options into one. Knowing that early is cheaper than discovering it at a bank or investor meeting.
How much personal wealth sits behind the debts
The factor that decides most of these choices is how much of your personal wealth you are prepared to put in front of the business's debts. If the answer is none, a company is the structure that matches, provided you take personal guarantees and directors' duties seriously. If the answer is everything, because it is just the two of you and a handful of customers, the simplicity of a partnership may be the right trade. And if neither of you is committing your whole working life to the venture, a joint venture agreement is the honest structure. Tax, control and exits can all be adjusted with drafting. Personal exposure cannot.
Bringing on business partners in Australia comes down to comparing a small set of structures. A partnership means carrying on the business in common and being personally liable for its debts, with the state Partnership Act supplying default rules you can displace by agreement. A company means a separate legal entity that owes the debts itself, with shareholders' exposure capped at unpaid amounts on shares and profits taxed at 25% or 30% depending on base rate entity status. A joint venture means separate businesses collaborating on a defined project under contract. Weigh liability, tax, control, flexibility, running cost and the expected lifespan of the relationship, and then put the agreed answer in writing, because the defaults apply to everything you leave unsaid.