Business Contracts
Partnership Agreement
Defines the terms, responsibilities, profit-sharing, and governance structure between business partners forming a general or limited partnership.
Overview
Defines the terms, responsibilities, profit-sharing, and governance structure between business partners forming a general or limited partnership.
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Who Needs This Document?
Individuals starting a business together, professionals forming a practice (law firms, medical practices), and investors entering into joint business ventures.
When Do You Need This?
Required when two or more individuals decide to start a business together. Should be executed before any financial commitments are made, ideally during the planning phase when roles, capital contributions, and profit-sharing can be negotiated openly.
Key Provisions
A well-drafted document should include the following essential provisions:
- Capital contributions and ownership percentages
- Profit and loss distribution methodology
- Management authority and decision-making procedures
- Dissolution and exit procedures including buyout terms
Frequently Asked Questions
- Does a partnership agreement need to split profits equally?
- No. Absent a written agreement, many default partnership rules assume an equal split regardless of who contributed more capital or time, which surprises partners who put in unequal amounts. A partnership agreement lets partners set profit and loss shares by contribution, role, or any formula they negotiate. Writing this down early avoids a dispute later when the business is actually making money to divide.
- What happens if one partner wants to exit the business?
- A partnership agreement should spell out a buyout mechanism before anyone wants to leave, including how the departing partner's stake gets valued and whether remaining partners have a right of first refusal to buy it. Without this, an exit can force a valuation dispute or even a forced dissolution of the whole partnership. The exit terms matter most to the partners who aren't leaving.
- Are partners personally liable for the partnership's debts?
- In a general partnership, each partner typically bears personal liability for the business's debts and for the actions of the other partners, not just their own. Limited partnership structures can shield certain partners from this exposure in exchange for reduced control over management decisions. The trade-off between liability protection and management authority is the central choice a partnership agreement has to resolve.
Related Documents
- LLC Operating AgreementEstablishes the ownership structure, operating procedures, and member rights for a limited liability company.
- Shareholder AgreementGoverns the relationship between shareholders of a corporation, protecting minority rights and establishing corporate governance rules.
- Non-Disclosure Agreement (NDA)A legally binding contract that establishes confidentiality between parties sharing sensitive information, trade secrets, or proprietary data.