Partnership Agreements: What to Include

When you go into business with anyone – be a friend, relative, acquaintance, or past business partner – there should also be a written partnership agreement to define the terms of your business relationship. Disputes can arise between the best of friends, and business matters tend to inspire litigation, so you should protect yourself.

At a minimum, a written partnership agreement should contain the following.

Partnership Agreements: Nature & Purpose

Clearly define the nature and purpose of your business relationship, including the type of business you are starting and your individual roles. Make sure that this is straight-forward and well-thought-out, and that both parties agree to the terms. Here, it is better to say too much than too little.

Partnership Agreements: Capital Contributions

Most businesses require some form of capital to start out, even if it is only money to start a website and to print business cards. In your partnership agreement, state exactly how much each partner has put into the start-up capital, and how they will recoup those investments once the business takes off.

Partnership Agreements: Profit & Loss

In this part of the partnership agreement, define exactly how the profits and deficits will be accrued by each partner. Even if you plan to split everything 50-50, say so.

Partnership Agreements: Authority

Sometimes this is a large issue, and sometimes it isn’t, but be clear. Each partner should have some level of authority, the degree of which should be stated here. If it is 50-50 over all aspects of the business, say it.

Partnership Agreements: Admission of New Partners

Potentially, your business may grow, and new partners will become essential. Decide in advance how you will handle new partners, executive officers and employees. The division of profits should be determined in advance to avoid future complications.

Partnership Agreements: Death of a Partner

As unpleasant as it may seem, the death of a partner will have certain impacts upon a business. Decide in advance how it will be handled. Will the surviving partners all inherit equal shares of the remaining portion? Will the deceased’s family be given his or her share? However you decide to handle it, the method should be put in writing.

Partnership Agreements: Buy-Out

In the case of death, divorce, bankruptcy, or illegal activity, one partner’s share may be bought out by the other partners. Determine the provisions for that circumstance in advance.

Partnership Agreements: Signature Authority

There are multiple options for this provision of your agreement, but be clear on how you will handle this. Signature authority for bank accounts, documents, contractors with vendors or employees and other circumstances should be administered however you see fit. Each partner can be given equal authority to sign for all partners, or you can require that all partners must sign a document.

Ask your attorney whether your state has adopted the Uniform Partnership Act or the Revised Uniform Partnership Act, because both of these can have impacts on your partnership agreement.