Partnership Agreement Template
With this general partnership agreement template, you'll set the expectations and terms of your partnership with your business partner. Download this free general partnership agreement template below and customize it to meet your unique business legal needs.
GENERAL PARTNERSHIP AGREEMENT
This partnership agreement is made on [Date] between ____________________ and _____________________,whom hereinafter are referred to as the “Partners”, agree as follows:
1. Name and Business
The Partners voluntarily associate themselves together as general partners for the purpose of conducting the general business of __________________________, and any other type of business that may from time to time be agreed on by the Partners. The parties hereby form a partnership under the name of [Business Name]. The principal place of business shall be at [Address/City/State/Country] and any other place or places that may be mutually agreed upon by the Partners.
The partnership shall commence on _______________________, and shall continue until terminated.
The initial capital of this Partnership shall be the sum of $_____________________, to which each Partner shall contribute by depositing in a checking account in the name of the Partnership, the following amounts: $__________ by [Partner Name] and $___________ by [Partner Name]. A separate capital account shall be maintained for each partner.
Upon the demand of either partner, the capital accounts of the partners shall be maintained at all times in the proportions in which the partners share in the profits and losses of the partnership.
Accordingly, neither partner shall withdraw any part of their capital account.
4. Profits and Losses
The net profits of the partnership shall be divided equally between the partners and the net losses shall be borne equally by them. A separate income account shall be maintained for each partner. Partnership profits and losses shall be charged or credited to the separate income account of each partner. If a partner has no credit balance in their income account, losses shall be charged to their capital account.
No interest shall be paid on the initial contributions to the capital of the partnership or on any subsequent contributions of capital.
As compensation for his or her services in and to the Partnership business, each Partner shall be entitled to a salary of $______________ each month, which shall be deducted by the Partnership as an ordinary and necessary business expense before determination of net profits. The salary of any Partner may, however, be increased or reduced at any time by mutual agreement of all the Partners.
7. Partnership Funds
All funds of the partnership shall be deposited in its name in such checking account or accounts as shall be designated by the partners. All withdrawals therefrom are to be made upon checks signed by either partner.
8. Partnership Books
At all times during the continuation of the Partnership, the Partners shall keep accurate books of account in which all matters relating to the Partnership, including all of its income, expenditures, assets, and liabilities, shall be entered. These books shall be open to examination by either Partner at any time.
9. Management Duties
The partners shall have equal rights in the management of the partnership business including the authority to bind the Partnership in making contracts and incurring obligations in the name and on the credit of the firm, and each partner shall devote their entire time to the conduct of the business. Without the consent of the other partner neither partner shall on behalf of the partnership borrow or lend money, or make, deliver, or accept any commercial paper, or execute any mortgage, security agreement, bond, or lease, or purchase or contract to purchase, or sell or contract to sell any property for or of the partnership other than the type of property bought and sold in the regular course of its business.
The partnership may be dissolved at any time by agreement of the partners, in which event the partners shall proceed with reasonable promptness to liquidate the business of the partnership. The partnership name shall be sold with the other assets of the business. The assets of the partnership business shall be used and distributed in the following order:
(a) to pay or provide for the payment of all partnership liabilities and liquidating expenses and obligations;
(b) to equalize the income accounts of the partners;
(c) to discharge the balance of the income accounts of the partners;
(d) to equalize the capital accounts of the partners; and
(e) to discharge the balance of the capital accounts of the partners.
11. Death of a Partner
Upon the death of either partner, the surviving partner shall have the right either to purchase the interest of the decedent in the partnership or to terminate and liquidate the partnership business.
If the surviving partner elects to purchase the decedent's interest, he shall serve notice in writing of such election, within _____ months after the death of the decedent, upon the executor or administrator of the decedent, or, if at the time of such election no legal representative has been appointed, upon any one of the known legal heirs of the decedent at the last-known address of such heir.
(a) If the surviving partner elects to purchase the interest of the decedent in the partnership, the purchase price shall be equal to the decedent's capital account as at the date of their death plus the decedent's income account as at the end of the prior fiscal year, increased by their share of partnership profits or decreased by their share of partnership losses for the period from the beginning of the fiscal year in which their death occurred until the end of the calendar month in which their death occurred, and decreased by withdrawals charged to their income account during such period. No allowance shall be made for goodwill, trade name, patents, or other intangible assets, except as those assets have been reflected on the partnership books immediately prior to the decedent's death; but the survivor shall nevertheless be entitled to use the trade name of the partnership.
All notices between the parties 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, instead of personal service, when deposited in the United States mail, as certified, with postage prepaid, and addressed to the partner at the address of the principal place of business of the Partnership or to another place that 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.
Any controversy or claim arising out of or relating to this Agreement, or the breach hereof, shall be settled by arbitration in accordance with the rules, then obtaining, of the American Arbitration Association, and judgment upon the award rendered may be entered in any court having jurisdiction thereof. In witness whereof the parties have signed this Agreement.
This Partnership Agreement contains the entire agreement of the parties with respect to the subject matter of this Agreement, and supersedes all prior negotiations, agreements and understandings with respect thereto. This Agreement may only be amended by a written document duly executed by all parties.
Executed this ______________ day of _________________, 20__, in [City, State].
This form has been prepared for general informational purposes only. It does not constitute legal advice, advertising, a solicitation, or tax advice. Transmission of this form and the information contained herein is not intended to create, and receipt thereof does not constitute formation of, an attorney-client relationship. You should not rely upon this document or information for any purpose without seeking legal advice from an appropriately licensed attorney, including without limitation to review and provide advice on the terms of this form, the appropriate approvals required in connection with the transactions contemplated by this form, and any securities law and other legal issues contemplated by this form or the transactions contemplated by this form.
What is a Partnership Agreement?
A partnership agreement a contract between business partners that details how the business operates and the individual responsibilities and liabilities of each party.
When two or more people start a business, they need a partnership agreement. This is a legal contract that dictates how the business operates. These contracts are often very complex. Many businesses attempt to avoid using a partnership agreement, but this can create big problems in the future.
Without an agreement, you are subject to default rules, usually either the Uniform Partnership Act or the Revised Uniform Partnership Act. Default rules may not be enough to govern your business because every partnership is different and has different legal needs. A partnership agreement may also be called:
General Partnership Agreement
Articles of Partnership
Types of Partnership Agreements
There are three basic types of partnership agreements. They are:
General Partnership (GP)
Limited Partnership (LP)
Limited Liability Partnership (LLP)
A GP is for when two or more people start a for-profit business. With a GP, every named partner is equally responsible. An LP portions liability. One partner has unlimited liability while another is only liable for their ownership percentage. An LLP is when partners are only responsible for their own actions. Decide which partnership you want to use before writing your agreement.
When Should You Use a Partnership Agreement?
Anyone who starts a business with a partner needs a partnership agreement. This is true even if you start a business with friend or family. Partnership agreements can settle disputes, divide up profits and much more. If a partner wants to leave your business, the rules for leaving are in the partnership agreement.
There is almost no downside to using a partnership agreement.
When Should You Not Use a Partnership Agreement?
You should almost always use a partnership agreement for your business. The only time to avoid using one is if you and your partner can't agree on terms. In these cases, use default rules. You also shouldn't use a partnership agreement if one partner refuses any liability. This may mean they are not trustworthy and may harm your business. Every business should consider a partnership agreement.
Basic Information Needed in a Partnership Agreement
You must include basic information in your partnership agreement to set the boundaries of your business. This is in addition to the rules for how your business operates. Some of the basic information your agreement needs to include is:
The name of your partnership
The date your partnership takes effect
Length of the partnership
The purpose of your partnership
After this information is recorded, discussions about the partnership terms can begin.
Outlining Your Partnership
A partnership agreement is very detailed. It must cover every area of your business. There are certain elements it must contain. This includes how it runs and what each partner contributes to the business. You and your partners need to discuss and agree on several things.
This determines ownership percentage. The percent each partner owns is based on how much capital they contribute. You also need to discuss what counts as capital. Is it just money, or can it be tangible assets? This section should include what happens if a partner does not contribute and if future contributions are allowed.
Types of Partners
Your partnership may contain different types of partners with different workloads. Some partners are involved in every aspect of the business. Others may only take part financially. Detailing each partner's role is the focus of your agreement.
Distributing profits and losses is an important part of a partnership agreement. This is done in one of two ways. Fixed percent is the most common. Each partner shares a percent of losses and profits. The percentages must total 100 percent when added. Equal share is the other type of distribution. This means partners evenly share both profits and losses. You can also discuss how often partners can receive profits (draws).
Partners should agree on a salary. For new businesses, this may be lower at first. Generally, partners have the same yearly salary. This relates to but is different from profit distribution. This section also includes items like vacations, sick leave, and other benefits or leaves of absence.
Part of your agreement should include tasks necessary to maintain your business. This can include rules for record keeping and where records are kept. The maintenance section can also contain rules for company meetings, such as how many partners counts as a quorum.
You must discuss how the business is managed. Many businesses choose one partner as the manager. Some use a voting system where every partner has a say. There are several systems you can use. Proportional to Contribution voting is where the weight of a partner's vote is tied to their capital contribution. Proportional to Profit Share means voting power is based on profit share distribution. Equal Vote means each vote counts the same.
Many partnerships contain non-disclosure, non-solicitation, and non-competition clauses. This protects your business from disgruntled former partners. Partnership agreements may also restrict the outside behavior of partners. This protects your businesses image.
At some point, a partner may need to withdraw from the agreement. They may do so voluntarily or non-voluntarily. Your partnership agreement needs to explain the terms of withdrawal. This can include a probationary period, how much capital the leaving partner will receive, and if they need to give notice. You should also include rules for the expulsion of a partner.
Your partnership may eventually need to dissolve. There are many reasons for dissolution, such as:
Your agreement may include an end date.
Your business has served its purpose.
A partner has left the business through death, going to jail, being forced out of the business, or voluntarily.
One partner or the entire partnership has gone bankrupt.
Your agreement must contain dissolution terms to decide how assets are divided when the partnership ends.
Every partnership agreement needs a provision for resolving disputes. This is important if you've assigned voting percentages but haven't included a tie breaker rule. Some partnerships give one member, like the CEO, the final say. You can also choose an outside source like mediation or arbitration. Disputes that end in litigation often result in partnership dissolution.
You and your partners need to agree on certain matters of authority. For example, will your business have a credit line? Which partners can sign contracts? What about spending? This section of your agreement should cover these issues.
Death or Disability of a Partner
Most agreements include something called a buy-sell agreement. This allows a partner who has died or become disabled to be bought out of the partnership. It may also be a good idea to include a key person insurance provision in your partnership. This insurance policy can keep your business afloat if a major partner dies.
New Partnership Members
You must agree to the procedure for bringing in a new partner. This can be as simple as a majority vote. You may also outline circumstances where existing partners can veto a new partner. This section allows your business to grow and add new members as needed.
Selling Your Business
A partnership agreement also needs to describe how the business can be sold. This can be done as part of the before mentioned buy-sell agreement. Make sure all partners agree with the details in this section, as selling a business is the cause of many partnership disputes.
How Can I Write a Partnership Agreement?
There are many ways to write a partnership agreement. Basic partnership agreements are usually available online. You can review these documents and make adjustments as necessary. You can also hire an attorney. An attorney will sit down with all partners and help them construct the agreement. If you use a template, you should always have your agreement reviewed by an attorney before signing.
Your agreement usually is not binding unless it is signed and notarized.
Partnership Agreement FAQ
- Is a Partnership Agreement Necessary?
- It is not necessary but recommended. These agreements protect the interests of all partners. They also put your business on solid footing.
Do I Need a Lawyer?
- Not necessarily. A lawyer can help write your agreement but one is not required. Hiring a lawyer makes writing your agreement much easier.
How Long Will My Agreement Last?
- Partnership agreements last as long as you want. This can be for years, decades, or even months. You and your partners will discuss length while writing your agreement.
Does My Agreement Need to Be Complex?
- Your agreement should include any needed information. This does not mean it needs to be complex. The language in an agreement can be simple if it covers the right topics.
Hire a Lawyer to Write Your Partnership Agreement
Writing a partnership agreement can be difficult. They cover a lot of important information necessary for the success of your business. Make writing your partnership agreement easier by hiring an attorney from UpCounsel.
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