Why lawyers must look beyond the IPP’s 51% test

That makes the reforms directly relevant to day-to-day legal work. A document can record ownership without showing whether that ownership carries practical power.

What changed

The revised IPP rules took effect on 1 July 2026. Under the strengthened eligibility criteria, an Indigenous enterprise is defined as 51 per cent or more First Nations owned and controlled or registered with the Office of the Registrar of Indigenous Corporations.

During 2026–27, transitional arrangements allow businesses to access the IPP if they meet either the original 50 per cent Indigenous ownership criteria or the strengthened 51 per cent ownership and control criteria. That gives businesses and advisers a limited window to test whether existing structures are robust enough.

The commercial context is significant. Since 2015, the IPP has helped generate more than 86,000 Commonwealth contracts worth over $13.5 billion for more than 4,700 Indigenous businesses, according to NIAA data published as of February 2026. From 1 July 2025, the Commonwealth procurement target increased to 3 per cent with annual increases of 0.25 percentage points until it reaches 4 per cent by 2029–30.

Where the legal risk sits

VIEW ALL

In practice, ownership is only meaningful if it carries authority. A First Nations owner who holds a majority of shares or units but cannot appoint directors, approve budgets, influence distributions, or shape strategy may have formal ownership without the practical governance influence the reforms are directed towards.

That is why lawyers should look beyond the policy headline and into the documents that determine how the business operates: constitutions, shareholders’ agreements, unitholders agreements, trust deeds, joint venture agreements, subcontracting agreements, finance documents, and management agreements.

None of those documents is inherently problematic. Commercial arrangements often need minority protections, lender controls, and operational safeguards. The issue is whether those protections support a genuine business or leave First Nations owners unable to make key decisions or benefit from the enterprise in substance.

The red flags are practical. Veto rights over budgets or major contracts management arrangements that shift day-to-day authority, finance covenants that dictate distributions, subcontracting that moves most of the margin elsewhere, or related-party dealings that leave First Nations owners with limited upside.

Why black cladding is a procurement integrity issue

The reforms also reflect the government’s stated concern about options to tackle black cladding. The term should be used carefully. In this context, it refers to arrangements where First Nations identity ownership or participation is presented to access procurement opportunities while practical authority or benefit may sit elsewhere.

For lawyers, the safer way to frame the issue is as a procurement integrity and governance risk. It can raise questions about representations made to government probity, verification conflicts, contract performance, and whether procurement outcomes are consistent with the policy objective.

Procurement teams are often trying to apply the policy in good faith while managing value for money, delivery, risk, and supplier capability. Lawyers can assist by ensuring the structures behind procurement representations are transparent and defensible.

What lawyers should do now

For First Nations businesses, the transition period is a chance to review governance rights, profit flows, board arrangements, financing terms, and operational dependencies. The aim is not cosmetic compliance. It is to be able to explain to a procurement team, funder, or commercial partner how authority and benefit operate in practice.

For non-Indigenous joint venture partners, the reforms require discipline. A genuine partnership can still provide capability, capital systems, and scale. But if a non-Indigenous party effectively directs budgets, key personnel, tender strategy, subcontracting, dividends, or major decisions, the arrangement needs review.

For government procurement teams and public sector lawyers, the issue is assurance. Tender processes, panel arrangements, contract management frameworks, and supplier declarations should be capable of testing who makes decisions, who receives value, who performs the work, and whether the documents match the representation.

For commercial lawyers, in-house counsel, and advisers, the work is made practical by testing voting rights against reserved matters, examining finance and security arrangements, analysing management and subcontracting flows, checking related-party dealings, and considering succession, deadlock, and exit rights.

Beyond the percentage test

The profession should resist treating the reforms as a narrow compliance update. The question is not just who owns 51 per cent. It is who decides, who benefits, who can say no, who sets direction, and who builds enduring enterprise value.

That is the lesson I would draw from this reform. Quorum provisions, veto rights, funding covenants, dividend policies, appointment rights, termination rights, and subcontracting pathways can determine where authority really sits. A proper review asks not only what the documents say, but how the business will operate when capital is required, contracts are performed, disputes arise, or a key relationship changes.

The practical role for lawyers is to align ownership, governance, and commercial reality. If the reforms are to maintain confidence in the IPP, First Nations ownership and control should be well documented and defensible.

Matthew Karakoulakis is a principal lawyer at AMK Law. He advises on commercial law governance and First Nations business structures.