Partnership Agreement (New Zealand)

A Partnership Agreement in New Zealand governs the relationship between the owners of a business, including capital, management, profit share, and exit, alongside the requirements of the Partnership Act 1908.

The Partnership Act 1908 establishes default rules that apply automatically to any New Zealand partnership unless the partners have agreed otherwise in a written partnership agreement. Those defaults include equal profit-sharing regardless of capital contributed or hours worked, unanimous consent for decisions outside the ordinary course of business, and automatic dissolution on the death or bankruptcy of any partner under section 36. Most professional and commercial partnerships need to override these defaults — a written Partnership Agreement is the mechanism for doing so.

Partner liability in New Zealand general partnerships is unlimited and joint under section 15 of the Partnership Act 1908. Each partner is personally liable for the full debts and obligations of the partnership incurred during their membership, meaning a creditor may pursue any individual partner's personal assets — including the family home — to satisfy a partnership debt. This exposure is markedly different from the limited liability available under the Companies Act 1993 or the Limited Partnerships Act 2008, where limited partners' liability does not exceed their registered capital contribution. Partners should obtain adequate public liability and professional indemnity insurance through a New Zealand-based insurer to manage this risk.

For tax purposes, a New Zealand general partnership is a flow-through entity under the Income Tax Act 2007: the partnership itself does not pay income tax, but must file an annual IR7 partnership income tax return with Inland Revenue (IRD). Each partner reports their allocated share of income in their own IR3 or IR3NR return, with the standard tax year ending 31 March. If the partnership's taxable supplies exceed NZD $60,000 in any 12-month period, registration for GST at 15% is mandatory under the Goods and Services Tax Act 1985. KiwiSaver employer contribution obligations do not apply to partnership distributions, but partners who employ staff through the partnership must meet KiwiSaver Act 2006 requirements for those employees.

New Zealand also recognises limited partnerships under the Limited Partnerships Act 2008, which must be registered with the Companies Office (a division of the Ministry of Business, Innovation and Employment (MBIE)). General partnerships under the Partnership Act 1908 do not require Companies Office registration, though the partnership may need to register a business name with the New Zealand Business Register if it trades under a name other than the partners' own names. A well-drafted Partnership Agreement should distinguish clearly between the general partnership structure and limited partnership structures to confirm the arrangement is implemented correctly from the outset.

A New Zealand Partnership Agreement is needed whenever two or more people or entities intend to carry on a business together and share its profits and losses, and they want their arrangement to be governed by terms they have chosen — rather than the default rules imposed by the Partnership Act 1908.

New business ventures: When founding partners are launching a business together in New Zealand — whether a retail operation, a hospitality venture, or a professional practice — a Partnership Agreement executed at the outset prevents costly disputes about capital contributions, management responsibilities, and income allocation. Without it, the Partnership Act 1908 defaults apply: profits split equally and any partner may trigger dissolution by giving notice.

Professional practices: Many New Zealand accountants, lawyers, architects, engineers, and healthcare providers operate as partnerships. A Partnership Agreement is essential for managing the allocation of client accounts, goodwill valuation on retirement, non-solicitation obligations between ex-partners, and succession of senior positions — matters that the Partnership Act 1908 does not address in detail.

Family and Maori business structures: Family partnerships and whanau-owned businesses benefit from a written agreement that clarifies how income is allocated between family members for Inland Revenue purposes, how the Partnership Act 1908 dissolution triggers are excluded, and how disputes are resolved within the family or iwi framework before escalating to the courts.

Joint property and investment partnerships: Where two or more individuals acquire investment property or commercial real estate together and share rental income and capital gains, a Partnership Agreement documents the profit-sharing ratio, the decision-making process for sale or refinancing, and exit mechanisms — complementing the interests registered on the LINZ (Land Information New Zealand) title.

Tax planning arrangements: Partnerships are commonly used in New Zealand as income-splitting vehicles under the Income Tax Act 2007. Because partnership income flows through to each partner according to their profit-sharing ratio, Inland Revenue scrutinises arrangements where the profit-sharing ratio does not reflect genuine economic contributions. A properly executed Partnership Agreement with commercially justifiable ratios provides the documentary foundation for the income allocation reported in the annual IR7 return.

KiwiSaver and employee obligations: If the partnership employs staff — as distinct from the partners themselves — the partnership as employer must meet KiwiSaver Act 2006 employer contribution obligations of 3% on employee gross earnings, deduct PAYE under the Income Tax Act 2007, and pay ACC employer levies under the Accident Compensation Act 2001. The Partnership Agreement should specify which partner is responsible for payroll compliance and for filing employer monthly schedules with Inland Revenue on time. Failure to meet employer obligations can result in penalties and use-of-money interest charged by Inland Revenue.

A New Zealand Partnership Agreement must address the following key elements to be legally effective and to override the default rules of the Partnership Act 1908.

Partner identification and NZBN: Each partner must be identified by full legal name and, for business entities, their New Zealand Business Number (NZBN) issued by the New Zealand Business Register. This is particularly important where a company registered under the Companies Act 1993 is a partner, as the company's registered name (ending in Limited or Ltd) must appear on the agreement.

IRD number and GST registration: The Partnership Agreement should record the partnership's IRD number issued by Inland Revenue and address the partnership's GST status under the Goods and Services Tax Act 1985. Partnerships with taxable supplies exceeding NZD $60,000 in any 12-month period must register for GST at 15%, and the agreement should specify how GST obligations are managed and how input tax credits are allocated between partners.

Capital contributions and accounts: The agreement must record each partner's initial capital contribution — in cash, property, or services — and establish a mechanism for maintaining separate capital accounts and current accounts for each partner. Interest on capital balances may be paid if the partners agree. The valuation of non-cash contributions should reflect arm's length market value for Inland Revenue compliance.

Profit and loss sharing: The default equal-sharing rule under the Partnership Act 1908 is overridden by specifying each partner's profit and loss ratio in the agreement. The agreement should also address drawings, retained profits, and how distributions are made, consistent with the partnership's annual IR7 income return filed with Inland Revenue for the tax year ending 31 March.

Management authority and decision-making: The agreement should define each partner's management role, set dollar thresholds on unilateral financial authority, and specify which decisions require unanimous consent of all partners — for example, major capital expenditure, admission of new partners, or entry into long-term contracts. ACC (Accident Compensation Corporation) levy obligations for any employees of the partnership should be addressed separately from partner ACC levies.

Dissolution and exit provisions: Sections 35 to 44 of the Partnership Act 1908 govern partnership dissolution. The agreement should expressly exclude automatic dissolution on the death or bankruptcy of a partner under section 36 and provide instead for a buyout mechanism — ideally supported by key person life insurance — with valuation based on an agreed formula or independent accountant determination.

Banking and financial administration: The agreement should designate the partnership's bank account, specify the signatories required for each class of transaction, and address how excess funds are invested. New Zealand partnerships commonly hold accounts with the major trading banks — ANZ, ASB, BNZ, Westpac, and Kiwibank — and should address internet banking authorities and two-person approval thresholds for significant payments.

Dispute resolution: The agreement should require partners to attempt to resolve disputes by good faith negotiation before referring the matter to mediation or, ultimately, to the High Court of New Zealand or the District Court under the District Court Act 2016. Many New Zealand partnership disputes are resolved through the Arbitrators' and Mediators' Institute of New Zealand (AMINZ) mediation process before escalating to litigation.

The forms-legal.com New Zealand Partnership Agreement template covers all nine mandatory elements above, including the critical IRD and PPSR compliance provisions specific to New Zealand, the ACC levy and KiwiSaver obligations for partnership employees, and dispute resolution through negotiation and mediation before resort to the courts of New Zealand.

New Zealand Partnership Agreements must operate within the statutory framework of the Partnership Law Act 2019, which replaced the Partnership Act 1908 and came into force on 1 November 2020. The Partnership Law Act 2019 modernised New Zealand's general partnership legislation, retaining the fundamental structure of the prior Act while clarifying several default rules and updating terminology. Practitioners should note that agreements executed before 1 November 2020 that reference the Partnership Act 1908 remain governed by that Act for existing matters, while new agreements should reference the Partnership Law Act 2019.

Under section 8 of the Partnership Law Act 2019, the definition of a partnership — 'the relation which subsists between persons carrying on a business in common with a view of profit' — is carried forward from the 1908 Act. The Act's default rules remain a critical practical concern: under section 28 of the Partnership Law Act 2019, profits and losses are shared equally regardless of capital contributed; under section 24, every partner may take part in management; and under section 36 of the Act, a partnership is dissolved by the death or bankruptcy of any partner unless the agreement otherwise provides. These defaults will govern any New Zealand general partnership that does not have a written agreement in place, and they frequently produce outcomes that the partners did not intend.

Partner liability under section 15 of the Partnership Law Act 2019 remains unlimited and joint: each partner is personally liable for the full debts and obligations of the partnership incurred during their membership. This personal liability extends to each partner's private assets — including real property registered at Land Information New Zealand (LINZ) and funds held in personal bank accounts — and can be enforced by creditors without first pursuing the partnership assets. The unlimited liability position makes the Partnership Law Act 2019 structure significantly riskier than a company incorporated under the Companies Act 1993 or a limited partnership registered under the Limited Partnerships Act 2008. A well-drafted Partnership Agreement must address this liability exposure, including partner insurance obligations and asset protection strategies.

The Contract and Commercial Law Act 2017 (CCLA) governs the contractual formation, performance, and breach of partnership agreements as commercial contracts. The CCLA's provisions on implied terms, variation, misrepresentation, and remedies apply to the partnership agreement as to any other New Zealand commercial contract. Where a partnership agreement is silent on a matter, the default rules in the Partnership Law Act 2019 apply — not the CCLA — making the interplay between these two statutes important to understand when drafting.

New Zealand Partnership Agreements are frequently inadequate or missing entirely, leaving partners exposed to the default rules of the Partnership Law Act 2019 and unlimited joint personal liability. The following mistakes arise regularly in New Zealand partnership practice.

1. Operating without any written agreement and relying on the Partnership Law Act 2019 defaults. Sections 24 to 32 of the Partnership Law Act 2019 impose default rules — equal profit sharing, equal management rights, unanimous consent for new partners — that are frequently inconsistent with the partners' actual arrangements. A silent partnership where one partner contributed 80% of the capital but shares profits equally exposes that partner to significant inequity with no contractual remedy. The correct approach is always to execute a written Partnership Agreement that overrides the defaults to reflect the actual commercial arrangement.

2. Not excluding automatic dissolution on a partner's death or bankruptcy. Under section 36 of the Partnership Law Act 2019, the death or bankruptcy of any partner dissolves the partnership unless the agreement provides otherwise. An unplanned dissolution during a period of commercial activity can be catastrophic — triggering liability for early termination of leases and contracts, disrupting supply relationships, and requiring all partnership assets to be realised and distributed under the dissolution rules in sections 37 to 46 of the Act. A written agreement should expressly exclude section 36 dissolution and provide for a buyout mechanism instead.

3. Failing to document capital contributions and specify profit-sharing ratios. A partnership that does not record each partner's capital contribution or specify a profit-sharing ratio defaults to equal sharing under section 28 of the Partnership Law Act 2019. Where partners have contributed different amounts of capital or time, equal sharing produces unfair outcomes. Inland Revenue (IRD) also scrutinises profit-sharing arrangements that do not reflect genuine economic contributions — a risk that can result in income reallocation under the Income Tax Act 2007.

4. Not specifying management authority thresholds. Without agreed thresholds, every partner has equal management authority under section 24 of the Partnership Law Act 2019. One partner may commit the partnership to major financial obligations — leases, equipment purchases, employment contracts — without the other partners' consent, and all partners will be jointly liable for the resulting obligations under section 15 of the Act. The agreement must specify dollar thresholds above which unanimous consent is required.

5. Neglecting the Personal Property Securities Act 1999 (PPSA) registration. Where the partnership provides credit to clients on a secured basis or acquires property subject to a purchase money security interest (PMSI), registration on the Personal Property Securities Register (PPSR) administered by the New Zealand Companies Office is essential to protect the partnership's priority over other creditors. An unregistered security interest may be defeated by a subsequent registered creditor or by the Official Assignee on a partner's bankruptcy under the Insolvency Act 2006.

6. Not including a non-competition or non-solicitation clause. Without an express restraint, partners may compete directly with the partnership or solicit its clients and employees after leaving — subject only to the general fiduciary duty that persists during the partnership. Under the Partnership Law Act 2019, a departing partner owes no post-exit restraint obligation unless one is expressly agreed. The agreement should include reasonable non-competition and non-solicitation clauses, noting that restraints must satisfy the New Zealand reasonableness test to be enforceable.

7. Omitting a buyout mechanism and valuation methodology. A partner who retires, dies, becomes bankrupt, or is expelled requires their interest in the partnership to be valued and purchased. Without an agreed methodology — earnings multiple, book value, or independent accountant determination — the parties will dispute valuation. Costly High Court of New Zealand litigation or District Court proceedings under the District Court Act 2016 frequently result from the absence of agreed valuation terms.

8. Ignoring GST and IRD compliance obligations. A partnership with taxable supplies exceeding NZD $60,000 in any 12-month period must register for GST at 15% under the Goods and Services Tax Act 1985. Failure to register results in Inland Revenue assessing deemed GST on supplies made without charging it — an expense borne by the partnership rather than the client. The agreement must address who is responsible for GST registration, filing, and returns, and how GST refunds and payments are handled through the partnership bank account.

9. Not addressing ACC levy obligations for partnership employees. Partners themselves pay their own ACC levies as self-employed persons under the Accident Compensation Act 2001. But where the partnership employs staff, it is an employer for ACC purposes and must pay employer ACC WorkLevy rates on employee earnings. A partnership agreement that does not designate which partner is responsible for ACC employer obligations — and for reporting changes in employee numbers to ACC — creates compliance gaps that can result in levy underpayment penalties.

10. Failing to update the agreement when the partnership changes. A partnership agreement prepared when two partners launch a business becomes inadequate when a third partner is admitted, when the profit-sharing ratio changes, or when one partner transitions to a reduced role. Under the Partnership Law Act 2019, admitting a new partner requires unanimous consent under section 27, but that consent and its terms must be documented in an updated agreement. An outdated agreement creates disputes about the new partner's rights, contribution obligations, and share of accumulated assets.