Partnership Agreement
A partnership agreement is a formal document that outlines the terms of the business agreement between partners.
While not all states require partnerships to have a partnership agreement, it’s strongly recommended that you create one to avoid potential conflict or confusion in the future.
Topics
Partnership Agreement Meaning and Definition
A partnership agreement is a formal document that outlines the terms of the business agreement between partners.
While you can typically form a general partnership without any paperwork, it’s strongly recommended that you have a partnership agreement in place to avoid potential conflict or confusion in the future. Without a partnership agreement — and the terms and processes it includes and explains — there’s an increased likelihood of lengthy disputes between partners down the road.
If you plan to form a limited partnership or a limited liability partnership, your state may require you to have a partnership agreement (along with additional paperwork).
What Should a Partnership Agreement Include?
A partnership agreement can include several topics, but, at a minimum, it should cover the following:
- Each partner’s ownership percentage
- How partners will allocate profits and losses
- Who’s authorized to sign contracts and other legal documents
- How partners will make major business decisions
- How partners will resolve disputes
- What happens following the death or departure of a partner
- The process to add new partners
Should I Create a Partnership Agreement?
Having a formal partnership agreement in place for your business is a good idea whether it’s required or not.
The majority of states have enacted the Uniform Partnership Act (UPA), which regulates the governance of business partnerships. But, the UPA was designed as a general set of one-size-fits-all guidelines so it’s best to create an agreement that specifically relates to your partnership.
Moreover, clearly outlining the partnership’s terms and various business processes will decrease the likelihood of lengthy disputes between partners in the future.
Creating a Partnership Agreement
We recommend hiring an attorney to create your partnership agreement in most circumstances.
Partnership Agreement FAQs
What is a partnership agreement?
A partnership agreement is a formal document that outlines the terms of the business agreement between partners.
What should be in a partnership agreement?
At a minimum, a partnership agreement should include the following: each partner’s ownership percentage; how partners will allocate profits and losses; who’s authorized to sign contracts and other legal documents; how partners will make major business decisions and resolve disputes; what happens following the death or departure of a partner; and the process to add new partners.
What is the purpose of the partnership agreement?
The purpose of a partnership agreement is to clearly outline the partnership’s terms and various business procedures. This can help prevent confusion or disagreement between partners in the future.