Partnership Agreement Template

Successful partnership businesses rely upon carefully written and comprehensive partnership agreements. Find out why and how to create your own business contract between partners now.

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What is a Partnership Agreement

A partnership agreement is a specially written contract that binds two or more parties in a business venture. The parties involved can be individuals or other businesses.

Partnership agreements contain essential details on the nature of a business and allow outside parties and internal stakeholders to understand how the company is managed and financed. These important legal documents normally outline the following:

  • The legal name of the partnership

  • Who the owners of the business are

  • When the business was established

  • When the business will automatically end (optional)

  • How much capital has been invested by each party

  • How profits and losses will be distributed

  • How decisions are made within the business

  • How the business will be taxed

  • What must be done if the partnership is dissolved or a partner leaves the business

Who Needs a Partnership Agreement

Any start-up or pre-established business operating without a written accord can benefit from a partnership agreement. These essential legal contracts help those running the business to properly formalize many of the entity’s most important functions and the duties of individuals who own it.

Partnership agreements also help prevent disagreements over ownership stake percentages and how business decisions should be made. It likewise allows the rights of each owner to be clearly defined and legally documented.

Types of Partnership Agreement

Before you write your own partnership agreement, it is important to consider what kind of business you are going to set up.

This can affect the choices you make in terms of taxation and rules and regulations you may need to set in place from when your agreement is finalized.

Limited Partnership Agreements

A limited partnership agreement is a type of business structure where one or more partners are offered protection from debt liability.

In these kinds of agreements, a general partner is appointed who takes on most of the responsibility for any debts accrued by the company, whilst other partners only place their invested capital at risk. 

Limited partnerships should not be confused with limited liability partnerships when partners opt to structure their business as Limited Liability Company or LLC or offer the same limited liability protection to all its members.

In this case, there is no single general partner who carries the burden of all the business debts.

General Partnership Agreements

Most partnerships fall into the category of general partnerships. A general partnership agreement is normally used to create a contract between one or more business owners for an entity that has not registered as a corporation or LLC.

50-50 Partnership Agreement

Many business partnerships are created between various parties. In the case of a 50/50 partnership you create an agreement with one other individual. The agreement lays out how profits, decision-making, and responsibilities will be shared between the two partners. 

Not every task or cost has to be split exactly down the middle between the two partners. The agreement should make it clear exactly how much each partner will earn or how much responsibility they will have. 

Small Business Partnership Agreements

Small business partnership agreements allow owners of smaller entities to ensure that the key information of their business is properly defined and legally binding without registering officially with their state.

The partnership may later become an LLC or corporation if the owners choose to make it so.

Partnership Agreement Sample

Before starting your own fully-fledged partnership agreement document it can help to take a look over a real example first.

To get to grips with how your completed contract should appear and how it will read, browse through our partnership agreement sample below.

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Find out how a Partnership Agreement Sample looks like

How to Write a Partnership Agreement

A written partnership agreement must be carefully planned out. As a legal contract that must be adhered to once it has been signed, the details must accurately reflect the desired arrangement between all parties who own the business.

First of all, all the key nuances of the business must be properly included in the final document. This means explaining how much each owner has invested, how voting rights are distributed, how the business will be taxed etc.

Additionally, it is very important to explain all the company details in plain, easy to understand terms. Overcomplexity could lead to difficulties in interpreting the contract and ambiguity might lead to misunderstandings.

Use our partnership agreement form planner to take some of the difficulty out of this process.

It will guide you through each step of writing your contract by instructing you on what information you might need to include and what details must be provided.

Steps to dissolve a partnership agreement infographic

What Should Be Included in a Partnership Agreement

Partnership agreements are normally written so that the interests of all parties can be properly protected. This allows partners to clearly define key information such as:

  • Who owns and runs the business: The partnership agreement needs to detail the names and contact information of the main owners.

  • The main details of the business: The document must explain information on the business such as its registered name and address. It should also tell the reader what the company does; when the partnership was established, and if it will dissolve on a set date in the future.

  • Ownership rights and percentages: It is very important that the partnership agreement gives an explanation of how much money has been invested by each party and how business ownership is to be shared. 

  • A description of the partnership’s goals: A successful company sets clear goals that align with the aims of the owners. In the case of a partnership agreement, this means outlining how much revenue you expect to make, how many employees you wish to hire, or what outcomes you wish to achieve, etc. 

  • Profit and debt distribution: The partnership agreement should give an explanation of how profits and losses will be shared by the partners. This is normally done on a percentile scale and often follows how much of the company each party owns.

  • Tax status: The agreement should outline who is responsible for managing the company’s taxes and denoting a fiscal year-end date amongst other things. 

  • Adding or removing partners: It is important to plan ahead in case a partner leaves or a new one joins. Therefore the partnership agreement needs to explain the rules of how someone can be added or removed from the business officially and fairly. 

  • Voting rights for partners: Your partnership agreement should make it clear how voting rights will be shared between all the partners and establish what proportion of a vote is needed to proceed with an action.

Other Business Documents

A partnership agreement is just one of many important legal documents a new or established business could need to ensure it is run smoothly and securely. Here are a few other forms that could prove useful for your company:  

Partnership Agreement FAQs

Being fully sure of all the details and discrepancies that might come up during the creation of your contract is key. If you still need some extra guidance on the ins and outs of partnership agreements, read on to find the answers in our FAQs. 

Why a Partnership Agreement Needs to Be Written?

Partnership agreements add security and clarity to business entities. Even if company owners are friends or even spouses, it is essential to have some details of how money has been invested or how decisions should be made legally bound in writing.

It is of course possible to run a partnership without any kind of official legal documentation beyond an EIN (Employer Identification Number).

However, these kinds of companies are open to potential disagreements and misinterpretations of how profits and debt should be split. 

To ensure everyone is on the same page it’s much safer to formalize everything in a signed partnership agreement.  

How to Negotiate a Partnership Agreement?

Before writing and signing a partnership agreement, it is important that all the partners and parties involved fully understand what they are agreeing to. Therefore, all the owners need to get together first and negotiate how the business will be organized.

There’s no such thing as a one-size-fits-all partnership. How you run and structure your company is completely up to you and your partner(s).

Before you meet you should first define fundamentals such as how much each party will invest in the business, what they will do to help its day-to-day operations, and how they will interact with decision-making, etc.

It’s also important to define what business goals you all want to pursue. These should be aligned, or you may run into disagreements further down the line. Once this and other key decisions are agreed upon, you can start to draw up the partnership agreement.

Can I Use a Partnership for My LLC?

It is possible for LLCs to function in much the same way as a general partnership would. There is a little more paperwork involved in setting up an LLC, but it is an option that many business owners choose.

It offers partners limited liability and much the same operating structure as they would find with a normal partnership.

The other benefit of setting your partnership up as an LLC is you and your partners can elect to be taxed as a partnership if you fit the right criteria. This means that you and your partner’s income are taxed by the IRS but the LLC itself is not.

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Preview of your Partnership Agreement

PARTNERSHIP AGREEMENT
State of _________

County of _________

This Partnership Agreement (the "Agreement") is made this _________ day of _________, _________ (the "Effective Date"). The Partnership in this Agreement is made by and between the following parties (the "Partners"):
Partner Name: _________
Address: _________
E-mail: _________
Partner Name: _________
Address: _________
E-Mail: _________
The Partners agree to form a Partnership as set forth in this Agreement under the following terms and conditions:
A. NAME

The Partners in this Partnership shall operate under the name of _________ (the "Partnership").
B. PARTNERSHIP CHANGE OF NAME

In addition to the foregoing name, the activities and business of the Partnership may be conducted under such other name or names as may be designated from time to time by the Partnership. The foregoing name of the Partnership may also be amended upon the written and unanimous vote of all Partners.

Subject to certain circumstances which are described in detail below, if a Partner withdraws or dies and his or her interests in the Partnership are successfully bought out, the Partnership may change its name subject to the written and unanimous vote of all Partners.
C. PURPOSE OF THE PARTNERSHIP
The Partners voluntarily associate themselves and have come together to become legal partners for the following purpose or business: _________.
D. DURATION, TERMINATION, PLACE OF BUSINESS, AND OTHER RELATED MATTERS
     If the Agreement is executed, the Partnership shall commence on the _________ day of _________, _________, and continue until dissolved by mutual agreement or until terminated as provided in this Agreement.

     The principal place of business of the Partnership will be _________, _________, _________, _________ and/or such other place as may be mutually agreed on by the Partners.

     If applicable, the Partners will obtain any necessary licenses and permits to do business, register its Doing Business As Name ("DBA"), and obtain a Federal Employer Identification Number ("EIN").
E. INITIAL CAPITAL CONTRIBUTIONS

Initial capital contribution to the Partnership shall consist of:
     _________: $_________
     _________: $_________
A Joint Capital Account (a "Capital Account") shall be established for all contributions submitted by the Partners. Unless all Partners consent in writing to a withdrawal, all capital contributions shall be considered final and submitted by _________.
F. OWNERSHIP INTEREST

The ownership interests that the Partners shall have in the Partnership will be as follows:
     _________: _________%
     _________: _________%
G. MANAGEMENT AND AUTHORITY
Unless otherwise stated herein, the following criteria shall govern over all Partners:

     Each Partner shall have an equal voice and an equal vote in the management of the Partnership.

     Partners shall not have the individual authority to bind the Partnership in making contracts and incurring obligations in the name and on the credit of the Partnership.

     All decisions affecting the Partnership shall be valid, provided that every one of those decisions is based on a majority of equal votes.
The Partners agree to opt out of appointing or naming a Partnership Representative under 26 U.S. Code § 6221.
H. COSTS

Each Partner shall have a cost sharing percentage in accordance to the following:
     _________: _________%
     _________: _________%
I. PROFITS

From and after the commencement date of this Agreement, all net profits of the Partnership shall be shared by the Partners in accordance to the following percentages:
     _________: _________%
     _________: _________%
Once the costs of the Partnership have been paid in accordance to the cost sharing percentages designated herein, _________ shall account and distribute the net profits on the _________ of the month, according to the net profit percentages indicated above.
J. SALARIES AND DRAWINGS

No Partner shall receive any salary for services rendered to the Partnership, unless said Partners agree by unanimous consent to a permanent salary. In that case, the Partners shall have drawings in such amounts as may be agreed upon by the Partners.
K. ACCOUNTINGS

      A complete accounting of all Partnership accounts and affairs shall be audited and rendered to each Partner as of the close of business on the last day of each sixth month.
     All Partners shall maintain a joint contribution account. All Partners shall maintain a joint distribution account.

At all times during the continuance of the Partnership, all Partners shall keep accurate and complete books of account in which all matters relating to the Partnership, including all income, expenditures, assets, and liabilities, shall be entered. The books shall be kept open to examination to all Partners, regardless of whether they are majority or minority Partners, upon their request.
     Each Partner shall be individually responsible for his or her own share of income taxes on any distributions made.
     The Books of Account shall be kept on a cash basis.
     The fiscal year of the Partnership shall end on the last day of _________ of each year. For each fiscal year, all Partners will present their position on the state of the Partnership within _________ day(s) of the completion of this one-year period.
     The following Partners shall have authority to sign or draw checks from any Joint Capital Account:
       - _________
       - _________
L. NEW PARTNERS

New partners may be added to the Partnership in one of two ways:

     A new partner may enter the Partnership by invitation from the existing Partners.

     A new partner may also enter the Partnership by purchase of a deceased, retiring, withdrawing, or disabled partner's interests.

The Partnership shall amend this Agreement to include new partners upon the written and unanimous vote of all Partners.
M. WITHDRAWAL OF A PARTNER

Any Partner may withdraw from the Partnership giving each of the remaining partners at least _________ days' prior written notice of his or her intentions to withdraw. The withdrawal will become effective on the termination of the _________-day notice.

When a Partner withdraws, his or her interest shall be determined by evaluating the worth of the Partnership, and the withdrawing partner shall be paid the following:

1. A cash payment for the value of his or her unrepaid capital contributions, plus _________% interest on such contributions.

2. A cash payment in _________ equal installments, every _________ months, commencing _________ days after the close of the current fiscal year for his or her interest in the current year's profits.

3. An annual cash payment _________ days after the close of each fiscal year for the Partner's share of receipts from the business obtained prior to his or her withdrawal but completed after withdrawal.

4. Any annual fiscal losses of the Partnership or draws by the withdrawing partner prior to the withdrawal will be deducted from these sums.

The Partnership shall have the right to buy out the remaining property interests in the Partnership within _________ days. If no individual Partner(s) finalize a purchase agreement by _________ days after the withdrawing partner gives them notice of said withdrawal, the Partnership will be dissolved.

To prevent dissolution of the Partnership, the Partners may allow a new member to buy the withdrawing partner's interests in the Partnership.
N. DEATH OF A PARTNER

Upon the death of one of the Partners, the Partnership shall have _________ days to choose if they want to buy out the deceased partner's interest and distribute it equally between them.

The deceased partner's interests in the Partnership will be established based on his or her date of death, representing:

1. The total of the decedent's capital contribution to the Partnership.
2. His or her share of the net profits or losses for the current fiscal year to the date of death.
3. His or her share of the current business at the date of death.
4. Deducting therefrom any draw that the decedent had taken during the current fiscal year and any indebtedness of the decedent to the Partnership.

If the Partnership does not choose to use its option to buy out the deceased partner's interest in the Partnership, the Partners may cast a majority vote to allow the deceased partner's estate to continue to share in the partnership's profits and losses, just as the deceased person would have if he or she were alive. In such case, however, the estate shall not, as a transferee, participate in any management role of the Partnership nor have a right to vote.

If the remaining Partners do not use their option to buy out the remaining interest of the Partnership and distribute them equally, or if a majority of the Partners do not vote to allow the deceased partner's estate to become a transferee, interested individual partners will have the right to buy the interest equally.

If there is not a single individual partner interested in buying out the remaining interest, the Partnership shall be dissolved.

To prevent dissolution of the Partnership, the Partners may allow a new member to buy the deceased partner's interests.
O. VALUATION OF REMAINING PARTNERSHIP INTEREST

If a Partner withdraws or dies, as referenced above, the Partners shall unanimously agree to hire an external accounting firm to assess the value of the remaining share of interests. If the appraisal figures rendered by the external accounting firm do not satisfy the Partners, a second accounting firm may assess the value of the remaining share of interest in the Partnership. If the Partners do not agree to the appraisals or are not acceptable to them, the matter shall be subjected to an alternative dispute resolution as herein provided.
P. DISSOLUTION

The Partnership may be dissolved and liquidated, and all debts shall be paid upon the majority vote of all the partners. Any remaining funds shall be distributed on a percentage of ownership interest established under this Agreement.
Q. AMENDMENTS AND NOTICES

      This Agreement may be amended only with the unanimous consent of all the Partners and by, or in, writing signed by all the Partners.

      All notices between the Partners provided for or permitted under this Agreement or by law, shall be in writing and shall be deemed duly served when personally delivered to a partner, or, in lieu of such personal service, when deposited in the United States mail, certified, postage prepaid, addressed to the Partner at the address of the principal place of business of the Partnership or to such other place as may from time to time be specified in a notice given pursuant to this paragraph as the address for service of notice on the partner.
IN WITNESS WHEREOF, this Agreement has been executed and delivered in the manner prescribed by law as of the Effective Date first written above.


By: ________________________________       Date: _______________
       _________


By: ________________________________       Date: _______________
       _________
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