Business Contracts Explained: The 9 Agreements Small Businesses Actually Use

Almost every business dispute starts the same way: two people who agreed on something, remembered it differently, and had nothing in writing to settle the argument. You don't need a law degree to run a business, but you do need to know which contracts matter, what they actually do, and which clauses quietly cost people money. Here are the nine agreements most Australian small businesses will meet, in roughly the order you'll meet them.

The nine at a glance

Contract	What it covers	When you need it
Service agreement (T&Cs)	What you deliver and how you get paid	From day one, for every customer
Partnership agreement	How co-owners of a partnership operate and exit	Before you start trading together
Shareholders agreement	How company co-owners make decisions and part ways	When a company has two or more owners
Employment contract	Terms for staff on your payroll	Before an employee's first day
Contractor agreement	Terms for genuine independent contractors	Before any contractor starts work
Commercial lease	Your rights over business premises	Before you take the keys
NDA	Keeping shared information confidential	Pitches, negotiations, due diligence
Distribution/agency agreement	Someone else selling your product	When you expand through third parties
Franchise agreement	Operating under someone else's brand and system	Buying into or building a franchise

1. Service agreements — your terms and conditions

This is the contract you'll use most. It sets out what you deliver, when you get paid, who owns the work, and what happens when things go wrong. If you're sending quotes and invoices without written terms behind them, every job is a handshake deal.

Clauses that bite:

• Payment terms. Spell out when payment is due, whether you charge deposits, and what happens when invoices go unpaid. Vague terms are the number one cause of the cash flow problems covered in our cash flow management guide.
• Scope and variations. Define what's included and require variations in writing. Scope creep kills margins in service businesses.
• Unfair terms. If you use standard-form contracts with consumers or small business customers, one-sided clauses — unilateral price rises, automatic renewals the customer can't escape, termination rights only you hold — can be declared unfair under the Australian Consumer Law, and since November 2023 including them attracts serious penalties. The same law covers your marketing claims — see the $50 million misleading advertising rules.

2. Partnership agreements

If you run a partnership, this document governs profit splits, drawings, decision-making and — most importantly — how someone leaves. Without one, the default rules in your state's Partnership Act apply, and they rarely match what the partners actually intended. Remember partners are personally liable for each other's business debts, so this is not a relationship to leave undocumented. We've covered this in detail in Partnership Agreements: Why a Handshake Will Cost You.

Clauses that bite: exit and buy-out terms (how a departing partner's share is valued), deadlock resolution when partners are split 50/50, and what happens on death or incapacity.

3. Shareholders agreements

The company version of a partnership agreement. Your company constitution covers the mechanics; the shareholders agreement covers the relationship — who can sell shares to whom, how disputes get resolved, what happens when a founder walks. If your company has more than one owner and no shareholders agreement, you're one falling-out away from an expensive stalemate. See our company structure guide for how this fits into the bigger picture.

Clauses that bite: pre-emptive rights (existing shareholders get first refusal on any sale), drag-along and tag-along rights (what happens when a majority wants to sell), and good leaver/bad leaver provisions that set the price a departing shareholder gets for their shares.

4. Employment contracts

An employment contract can't undercut the National Employment Standards or the relevant modern award — those minimums apply no matter what the document says. What the contract does control is everything above the floor: duties, hours, notice, confidentiality and what happens on exit.

Clauses that bite:

• Probation. A six-month probation clause doesn't override the statutory minimum employment period for unfair dismissal claims (six months, or twelve for businesses with fewer than 15 employees).
• Restraints of trade. Non-compete clauses are frequently drafted too broadly to be enforceable, and the federal government has announced a ban on non-competes for most employees below the high-income threshold, slated to start in 2027 — check fairwork.gov.au for the current position before relying on one.
• Set-off clauses. If you pay an annual salary meant to absorb overtime and allowances, the contract must say so properly, and the salary must actually cover what the award would have paid.

5. Contractor agreements

A contractor agreement covers deliverables, rates, invoicing, insurance and intellectual property for genuine independent contractors. The dangerous part isn't the document — it's whether the person is really a contractor at all.

Since 26 August 2024, the Fair Work Act uses a "whole of relationship" test: what matters is the real substance of how the relationship works in practice, not just what the contract says. The ATO applies its own multi-factor test for tax and super, and a worker can be a contractor for one regime and an employee for the other. Calling an employee a contractor to avoid entitlements is sham contracting, and the Fair Work Ombudsman and ATO are actively pursuing it — penalties run up to $21,840 per contravention for individuals and $109,200 for small companies, with far higher maximums for larger employers (based on the $364 penalty unit applying from 1 July 2026), plus back-payment of super and PAYG withholding penalties on top.

Clauses that bite: IP assignment (without it, the contractor may own what they create for you), insurance and indemnity obligations, and delegation rights — a genuine contractor can usually subcontract; a clause forbidding it points towards employment.

6. Commercial leases

Usually the biggest financial commitment a small business signs, and the one people read least. Retail leases also get extra protections under state legislation, including mandatory disclosure statements — check your state's small business commissioner.

Clauses that bite:

• Term and options. A 3-year lease with two 3-year options is very different from a straight 9-year lease. Options protect you; missing the exercise window (often 3–6 months before expiry) loses them.
• Rent reviews. Fixed percentage, CPI or market review — know which applies each year, and watch for ratchet clauses that stop market rent ever going down.
• Make-good. The obligation to strip the premises back to original condition at the end. This can cost tens of thousands and lands exactly when you have the least cash. Negotiate it before signing, and document the condition on entry.
• Personal guarantees. Landlords routinely ask directors to personally guarantee the lease, which puts your house behind your company's rent. Negotiate a cap, a bank guarantee instead, or a release after a period of good payment.

7. Non-disclosure agreements (NDAs)

An NDA keeps information confidential when you pitch, negotiate or open your books to a potential buyer, investor or supplier. Use a mutual NDA when both sides share information, one-way when only you do.

Clauses that bite: the definition of confidential information (too broad and it's hard to enforce, too narrow and it misses what matters), duration (2–5 years is common; trade secrets may warrant longer), and carve-outs for information that's already public or independently developed. One thing an NDA doesn't do: stop someone competing with you. That needs a restraint clause, which is a different — and harder — legal animal.

8. Distribution and agency agreements

When someone else sells your product, the structure matters. A distributor buys your stock and resells it at their own margin and risk. An agent sells on your behalf for commission — you keep the customer contract and the risk. The tax, liability and Consumer Law consequences differ, so be deliberate about which you're creating.

Clauses that bite: exclusivity and territory (an exclusive national distributor who underperforms can strangle your growth), minimum purchase or sales targets with real consequences for missing them, and termination terms — including who buys back unsold stock and who owns the customer relationships when it ends.

9. Franchise agreements

The most heavily regulated contract on this list. Franchising in Australia is governed by the Franchising Code of Conduct — a new version of the Code commenced on 1 April 2025 — and it's enforced by the ACCC. Before you sign, the franchisor must give you a disclosure document and allow at least 14 days to consider it, and you get a 14-day cooling-off period after entering the agreement or making a payment (as at August 2026). You can also look up franchisors on the free Franchise Disclosure Register before you commit.

Clauses that bite: restraints that stop you operating a similar business after exit, marketing fund contributions you can't control or audit, and end-of-term arrangements — many franchisees discover too late that they have no automatic right to renew and no compensation for the goodwill they built.

When a template is fine — and when to pay a lawyer

Templates from reputable online legal services (LawPath and Sprintlaw are the well-known Australian names) are genuinely fine for low-stakes, standard documents: NDAs, simple service agreements, contractor agreements for modest engagements. The Fair Work Ombudsman also publishes free employment templates and guides.

Pay a lawyer when the stakes justify it: commercial leases, partnership and shareholders agreements, franchise agreements, anything involving a personal guarantee or restraint of trade, and any deal worth more than you could afford to lose in a dispute. A fixed-fee review typically costs a few hundred to a couple of thousand dollars; the disputes these documents prevent cost ten to a hundred times that. Every state law society runs a referral service if you don't know where to start.

The rule of thumb: if it's irreversible or high-value, get professional eyes on it before you sign. You can't un-sign a lease, un-guarantee a debt or un-sell a shareholding.

Key takeaways

• Written terms behind every quote and invoice are the cheapest dispute insurance you'll ever buy — start with a proper service agreement.
• Multi-owner businesses need an exit plan in writing (partnership or shareholders agreement) before the first dollar is earned, not after the first argument.
• The employee-versus-contractor line is policed by both the ATO and Fair Work under different tests — sham contracting penalties reach $109,200 per breach for small companies (as at August 2026).
• On leases, the expensive clauses are make-good, personal guarantees and rent review ratchets — negotiate them before signing, because you can't after.
• Franchise agreements come with mandatory disclosure, a 14-day consideration period and a 14-day cooling-off under the Franchising Code — use all of it.
• Templates suit standard low-stakes documents; anything irreversible or high-value deserves a lawyer's review.

Where to get help

• business.gov.au — plain-English guidance on contracts, leasing and hiring
• fairwork.gov.au — employment contracts, the contractor tests and free templates
• ato.gov.au — the employee/contractor decision for tax and super purposes
• accc.gov.au — the Franchising Code, unfair contract terms and your Consumer Law obligations
• asic.gov.au — company registration and officeholder duties behind shareholders agreements
• Your state law society's referral service for a contract lawyer, and your accountant for the numbers side of any deal before you sign it