Partnership agreement

1. 1. Partnership Information

• Full legal names of all partners, addresses, and contact information
• Partnership name and principal place of business
• Business purpose — Specific description of the partnership's scope and activities (avoid vague language like "general business purposes")
• Partnership type — General partnership (GP), limited partnership (LP), or limited liability partnership (LLP)
• Partner types — General partners (full management authority, unlimited liability) vs. limited partners (restricted roles, liability limited to investment)

2. 2. Capital Contributions

• Initial contributions from each partner — cash, property, equipment, intellectual property, or services (sweat equity)
• Valuation of non-cash contributions — Agree on fair market value at the time of contribution
• Additional contributions — When and how partners may be required (or permitted) to contribute additional capital
• Capital accounts — How they are tracked and maintained
• Repayment plan — How and when partners will be repaid for their capital contributions (upon exit, upon dissolution, or per a set schedule)

3. 3. Profit and Loss Sharing

• Distribution ratios — Can be equal, proportional to capital contributions, or any agreed-upon formula
• Calculation methodology — How net profits/losses are determined (accounting method, fiscal year)
• Distribution timing — Monthly, quarterly, annually, or at partners' discretion
• Retained earnings — How much profit is reinvested vs. distributed
• Guaranteed payments — Fixed payments to specific partners for services or capital use (similar to a salary, deductible by the partnership)
• Draw provisions — Rules for partners taking regular draws against expected profits

4. 4. Roles, Duties, and Responsibilities

• Management duties — Who handles day-to-day operations, financial management, marketing, etc.
• Time commitment — Expected hours/effort from each partner (full-time, part-time, or advisory)
• Fiduciary duties — Duty of loyalty, duty of care, duty of good faith
• Non-compete and non-solicitation clauses — Restrictions on partners operating competing businesses
• Outside activities — Whether partners can engage in other business ventures

5. 5. Decision-Making and Authority

• Voting rights — How votes are allocated (equal, proportional to ownership, or otherwise)
• Ordinary decisions — Day-to-day decisions that any partner can make independently
• Major decisions requiring consent — Define which decisions need majority or unanimous approval:
• Taking on debt or loans
• Spending above a dollar threshold
• Hiring/firing key employees
• Entering contracts above a certain value
• Admitting new partners
• Selling partnership assets
• Deadlock resolution — What happens when partners cannot agree (mediation, arbitration, coin flip for minor matters, third-party tiebreaker)

6. 6. Dispute Resolution

• Mediation — First step; partners attempt to resolve disputes with a neutral mediator
• Arbitration — Binding arbitration if mediation fails (faster and less expensive than litigation)
• Litigation — Specify governing law and jurisdiction if court action becomes necessary
• Right to cure — Give the offending partner a chance to fix a breach before escalation

7. 7. Adding New Partners

• Process for admitting new partners (unanimous consent, majority vote, etc.)
• How new partners' capital contributions and ownership percentages are determined
• Impact on existing partners' ownership shares

8. 8. Exit Provisions and Withdrawal

• Voluntary withdrawal — Notice requirements (typically 30-90 days), process for buying out the departing partner
• Involuntary removal/expulsion — Grounds for expulsion (breach of agreement, criminal conduct, incapacity, bankruptcy)
• Buyout valuation — How the departing partner's interest is valued (formula-based, independent appraisal, book value, etc.)
• Payment terms — Lump sum or installment payments for the buyout
• Right of first refusal — Existing partners get first option to purchase a departing partner's share before it can be offered to outsiders
• Non-compete upon exit — Restrictions on the departing partner competing with the partnership

9. 9. Death and Incapacity

• Buyout upon death — How the deceased partner's interest is handled (purchased by remaining partners or the partnership entity)
• Life insurance funding — Cross-purchase or entity-purchase life insurance policies to fund the buyout
• Incapacity provisions — What happens if a partner becomes permanently disabled
• Succession rights — Whether a partner's heirs can inherit the partnership interest or must sell it

10. 10. Partnership Duration and Dissolution

• Term — Fixed duration or indefinite (at-will)
• Events triggering dissolution — Death of a partner, withdrawal, unanimous vote, court order, or specific date
• Winding down process — How assets are liquidated, debts paid, and remaining assets distributed
• Distribution order — Typically: creditors first, then return of capital contributions, then profit distributions

11. 11. Legal and Administrative Provisions

• Governing law — Which state's laws apply
• Amendment process — How the agreement can be modified (typically requires unanimous or supermajority consent)
• Books and records — Who maintains them, how they are kept, and partners' right to inspect
• Tax elections — Partnership tax year, accounting method, Section 754 election provisions
• Indemnification — Partners indemnify each other for actions taken in good faith on behalf of the partnership
• Severability — If one clause is found unenforceable, the rest of the agreement still stands
• Entire agreement — States this document supersedes all prior agreements

Common Mistakes

• Relying on a handshake deal without a written agreement
• Using a generic template without customizing for your specific situation
• Failing to address what happens when a partner wants to leave
• Not specifying how disputes will be resolved
• Splitting ownership 50/50 without a deadlock resolution mechanism

Sources

• Davis Business Law — Ultimate Guide to Partnership Agreements
• ContractsCounsel — Partnership Agreement: 11 Key Elements
• US Chamber of Commerce — How to Write a Business Partnership Agreement
• Adobe — Partnership Agreement: What Is It and How to Write One
• Azeuz Convene — How to Write an Effective Partnership Agreement

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