How To Write a Partnership Agreement

Starting a business relationship with someone else can be exciting. But before you open a bank account, sign a lease, or start taking customers, it helps to put your business rules in writing.

Even if partners do not sign a written agreement, they may still create a partnership through their actions. In that situation, laws of the state may control important business issues instead of the partners’ own preferences.

What Is a Partnership Contract?

A written partnership agreement is a legal document that explains how two or more people will own and operate a business together. A partnership agreement can set the rules for a general partnership. A limited partnership also uses a partnership agreement, but it generally requires state filings and has different rules for general and limited partners.

In a general partnership, the partners usually own and manage the business together. In a limited partnership, one or more general partners usually manage the business, while limited partners may invest money or property without handling day-to-day operations. A limited partnership can also have different filing and liability rules under state law.

A partnership agreement can answer important questions, including:

• How much of the business does each partner own?
• Is each partner a general partner or a limited partner?
• How much money, equipment, property, or work does each partner contribute?
• Who handles day-to-day management and makes major business decisions?
• How will the partners share profits and losses?
• Can a partner sell or transfer their share of the business?
• What happens if a partner quits, dies, or cannot work?

Understand Personal Liability

In a general partnership, partners generally have personal liability for the partnership’s debts and obligations. Limited partnerships and limited liability partnerships have different liability rules. Because these rules vary by state and business structure, consider getting legal advice before choosing a partnership structure.

Writing a clear partnership agreement can prevent misunderstandings and give partners a plan for handling difficult situations.

What To Include

Your agreement does not have to be long or full of legal terms. At a minimum, it should cover these points:

• Business name and purpose
• Says what the business is and what it does
• Partner names
• Identifies the owners
• Each partner’s ownership interest. This should explain how the business will share earnings and losses
• Contributions
• Lists the money, equipment, property, or work each partner brings in
• Profits and losses
• Explains how the business will share earnings and losses
• Duties and authority
• Clarifies who handles daily work and major decisions
• Banking and records
• States who can access business funds and financial records
• New partners
• Sets rules for bringing in another owner
• Leaving or selling
• Explains what happens if a partner wants out
• Disputes
• Creates a plan for working through disagreements
• Closing the business
• Explains how debts and remaining partnership property will be handled

The most useful agreements are specific. Instead of writing, “We will split money fairly,” write something like: “Alex receives 60% of profits and Taylor receives 40%.”

Simple Business Partnership Agreement Template

You can use this template as a starting point for a limited or general partnership. Before using this template, make sure you know which type of partnership you are forming. A general partnership, limited partnership, and limited liability partnership have different rules for management, liability, and state filings. This template is designed for a general partnership or limited partnership. An LLP may require a different agreement and state filing.

How State Partnership Laws Affect Your Business

A limited partnership typically requires a state filing, often called a certificate of limited partnership or certificate of formation, in addition to an agreement. State rules vary, so consider having a local business lawyer review the document before you sign or file it.

Many states base their partnership laws on the Uniform Partnership Act or Revised Uniform Partnership Act (RUPA). These laws provide default rules for issues the partners do not address in their agreement — such as profit sharing, management rights, a partner’s authority, and what happens when someone leaves the business. State laws vary, and some rules cannot be changed by agreement.

A partnership agreement can often change those default rules, but not every rule can be waived or changed. Because each state can adopt different language or make its own changes, check the law in the state where your business operates before relying on a template.

Partnership Agreement FAQs

Can I write my own partnership agreement?

Yes. You can write your own partnership agreement, especially for a simple business with a small number of owners. A template can help you cover the basics, such as ownership, contributions, profits, job duties, and what happens if someone leaves.

Still, a lawyer can help you make sure the agreement follows your state’s laws and matches the way your business actually works.

Does a partnership agreement have to be in writing?

A partnership may exist even without a written agreement. Partners can sometimes form a partnership by acting as co-owners of a business.

However, a written agreement is much easier to understand and enforce than an oral agreement. It gives everyone a clear record of the rules they agreed to follow.

What should a partnership agreement include?

A basic partnership agreement should include:

• The business name and purpose
• The partners’ names and ownership shares
• Each partner’s contribution
• How profits and losses will be shared
• Each partner’s duties and decision-making power
• Rules for taking money from the business
• Rules for a partner leaving or selling their share
• A plan for disagreements and closing the business

How do partners split profits?

Partners can split profits equally, based on ownership percentages, or by another method they agree on. For example, one partner may receive 60% and another may receive 40%.

Put the exact split in writing. Also decide whether the business will keep some money for taxes, bills, and future expenses before partners take distributions.

What happens if a partner wants to leave?

Your agreement should explain the process. It may require written notice, give the remaining partner a chance to buy the departing partner’s share, and explain how the share’s value will be calculated.

Without a clear exit plan, a partner leaving can create serious disagreements about ownership, business property, and money.

Can a partner sell their share to someone else?

Usually, the partnership agreement can limit this. Many agreements require the other partner or partners to approve a sale first. Some also give the remaining owners the first chance to buy the departing partner’s share.

Do I need a lawyer for a partnership agreement?

You may not need a lawyer for a very simple agreement. But legal advice is a good idea if the business involves major investments, real estate, employees, intellectual property, debt, unequal ownership, or a complicated buyout plan.

Partnership rules vary by state, and the right structure may not always be a general partnership. For example, limited partnerships and limited liability partnerships can have different legal and filing requirements.

Have a Business Lawyer Review Your Partnership Agreement

A partnership agreement can help you start a business with clear expectations. Find a local business and commercial law attorney who can review your agreement, explain your state’s rules, and help you avoid costly mistakes.

Disclaimer: The information presented here does not constitute legal advice or representation. It is general and educational in nature, may not reflect all recent legal developments, and may not apply to your unique facts and circumstances. Consider consulting with a qualified business attorney if you have legal questions.