Business partnerships and contracts can offer fantastic opportunities, making it easy to forget to study the details of the contract. And when issues arise, you might regret it and have significant liabilities as a result of not properly vetting the deal.

Liabilities in business agreements and partnerships usually fall into three categories: joint, several, or “joint and several.” A joint partnership means sharing responsibilities and liabilities equally, while in a several agreement, the parties share liabilities and responsibilities separately.

Consulting an expert contract lawyer is crucial before entering into an agreement, partnership, or contract with obligations or liabilities. Read this guide to understand what joint, several, and “joint and several” liability means in Australian law. But first, let’s start with the basics.

What Is A Liability In Business?

Liability simply means you’re responsible for something. In a business setup, liability means you’re responsible for certain obligations. When forming a partnership, it’s important to understand the liabilities you will hold. For example, who will clear the debts if the business is deemed insolvent?

In business partnerships, the partners can have limited or unlimited liability. The former means that each party is responsible for their actions, while the latter means the company’s liabilities are shared among the partners.

What Does Joint Liability Mean?

As the word suggests, joint liability means that two or more people jointly share a liability. In this arrangement, the involved parties are equally responsible for fulfilling the promise or obligation.

The same equality applies to debts or legal actions that a person might take against the partners. All involved parties will be required to share the responsibility of repaying the debt or facing legal charges.

If one party fulfils the liability, they exempt all the involved parties. However, if some fulfil and some don’t, everyone is at risk of being sued.

Let’s share an example for better understanding:

Ian and Emma jointly agree to pay John $1,000. Since it’s a joint liability, the two are responsible for the debt. Even if Emma single-handedly pays $500, the partners will still jointly owe John $500. Suppose they fail to repay the remaining amount, Bob may press legal charges on Ian and Emma, regardless of Emma’s efforts.

What Does Several Liability Mean?

The term several liability means that two or more parties agree to share an obligation or liability separately. In such arrangements, each person is responsible for fulfilling their promise. If one does their part, it doesn’t exempt the others from their obligations.

Let’s use a similar example to help you understand this concept better:

Ian and Emma agree to pay John $1,000 by sharing the debt equally. Since it’s a several liability agreement, both should each pay $500. If Emma holds to the end of the bargain, she exempts herself from legal charges. In case Ian doesn’t pay his share, John may only sue Ian and not both parties, as evident in joint liability.

What Does Joint And Several Liability Mean?

Joint and several liability combine the two ideologies into one. In this case, the parties jointly agree to perform an obligation but also make separate promises to fulfil the same commitment. If one person satisfies the promise, it exempts the rest from the liability.

However, if the obligation isn’t met, all parties are responsible. The debtor can press legal charges on all the parties or one party for the entire promise.

Again, let’s use an example. Ian and Emma jointly and severally agree to pay John $1000. In this agreement, both parties are fully responsible for paying the agreed amount. If the promise isn’t met, John can sue Ian and Emma together. Alternatively, he can sue one individual to pay the entire amount.

What To Consider When Entering An Agreement

As you’ve seen, it’s vital to understand the type of liability before entering into a partnership or agreement. Before signing any contract with binding obligations or liabilities, ensure you understand the liabilities you’ll hold. Consult a commercial lawyer to explain the terms and help you make an informed decision.

The law assumes joint liability if two or more parties promise to work together under one agreement. If that’s not the case, the parties must clearly state whether the nature of their agreement is “several liability” or “joint and several liability.”

It’s also important to consider the laws surrounding joint and several liability agreements. Each state in Australia has an established Partnership Act that outlines the essential components of partnerships, including the liabilities and limitations of involved parties.

For example, the New South Wales Partnership Act 1892 explains the liabilities of partners in a business setup. According to the act, partners in a firm are jointly liable for all obligations and debts of the firm, unless it’s an incorporated limited partnership.

Need Help? Aditum Lawyers Are Here For You

When intending to join a partnership or enter a company structure, ensure the partnership or shareholder’s agreement clearly states the liabilities and obligations of each partner.

If you’re looking for help with understanding how to properly structure a contract or partnership agreement, the experienced commercial lawyers at Aditum Lawyers can help. Contact us for legal advice before entering an agreement and we’ll help you understand where you stand and how to structure the agreement in a way that’s fair for everyone involved.

Resources & Further Reading

  1. https://business.gov.au/planning/business-structures-and-types/business-structures/partnership
  2. https://legislation.nsw.gov.au/view/whole/html/inforce/2004-04-05/act-1892-012#sec.9
  3. https://classic.austlii.edu.au/au/journals/AUConstrLawNlr/1994/84.pdf

Disclaimer: The information provided in this article is for general informational purposes only and should not be construed as legal advice. Consult with a qualified commercial lawyer for personalised advice regarding your specific situation.