Free Business Partnership Agreement Template
Establish clear terms between business partners—covering ownership, contributions, profit sharing, and what happens when partners leave.
A business partnership agreement defines the relationship between two or more people going into business together. It establishes who owns what, who decides what, how profits and losses are shared, and what happens when someone wants out. Without this agreement, your state's default partnership laws apply—and those defaults may not match what you intended. Most partnership disputes arise from assumptions that were never documented.
What is a Business Partnership Agreement?
When to Use a Partnership Agreement
Draft a partnership agreement before starting any business with other people.
- Starting a new business with one or more co-founders
- Converting a sole proprietorship to include new partners
- Formalizing an existing informal business arrangement between partners
- Adding a new partner to an existing partnership
- Restructuring ownership stakes or responsibilities among existing partners
- Transitioning a family business to the next generation
- Forming a joint venture for a specific project or investment
Types of Partnerships
The type of partnership affects liability and tax treatment.
General Partnership
All partners share management responsibilities and have unlimited personal liability for partnership debts. Simple to form but offers no liability protection. Partners report their share of income on personal tax returns.
Limited Partnership (LP)
Has general partners (who manage and have unlimited liability) and limited partners (who invest but don't manage and have liability limited to their investment). Common for real estate and investment partnerships.
Limited Liability Partnership (LLP)
Partners have liability protection—one partner's negligence doesn't expose other partners to personal liability. Popular with professional service firms like law and accounting practices.
Joint Venture
A partnership formed for a specific project or limited purpose. Partners combine resources for a defined objective, then go separate ways. The agreement should specify the venture's scope and endpoint.
Preview: Business Partnership Agreement
Business Partnership Agreement
Partnership Name and Purpose
The legal name of the partnership, its principal place of business, and the business purpose. The purpose can be broad ("any lawful business") or specific to a particular industry.
Partners and Contributions
Identify each partner and what they're contributing: cash, property, equipment, intellectual property, or services. Assign a dollar value to non-cash contributions.
Ownership Percentages
Each partner's ownership stake. This doesn't have to match contribution percentages—partners might agree to different splits based on roles, sweat equity, or future contributions.
Profit and Loss Distribution
How profits and losses are allocated. Often matches ownership percentages but can be structured differently. Specify when distributions are made and the priority of distributions.
Management and Decision-Making
Who has authority to make which decisions? Day-to-day operations may be delegated to one partner while major decisions require unanimous or majority consent. Define what constitutes a "major decision."
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What to Include in Your Partnership Agreement
Address these elements to create a comprehensive agreement.
Partnership Name and Purpose
The legal name of the partnership, its principal place of business, and the business purpose. The purpose can be broad ("any lawful business") or specific to a particular industry.
Partners and Contributions
Identify each partner and what they're contributing: cash, property, equipment, intellectual property, or services. Assign a dollar value to non-cash contributions.
Ownership Percentages
Each partner's ownership stake. This doesn't have to match contribution percentages—partners might agree to different splits based on roles, sweat equity, or future contributions.
Profit and Loss Distribution
How profits and losses are allocated. Often matches ownership percentages but can be structured differently. Specify when distributions are made and the priority of distributions.
Management and Decision-Making
Who has authority to make which decisions? Day-to-day operations may be delegated to one partner while major decisions require unanimous or majority consent. Define what constitutes a "major decision."
Partner Duties and Compensation
If partners work in the business, define their roles and any salary or guaranteed payments separate from profit distributions. Address outside business activities and conflicts of interest.
Capital Accounts and Loans
How capital contributions are tracked, whether additional contributions can be required, and how partner loans to the partnership are treated (interest, repayment priority).
Admission of New Partners
The process for adding partners—approval requirements, terms for buy-in, and how existing ownership stakes adjust.
Withdrawal and Exit
How a partner can voluntarily leave, what notice is required, and how their interest is valued and paid out. Address whether the partnership continues or dissolves.
Death or Incapacity
What happens to a partner's interest if they die or become incapacitated? Can heirs become partners, or must the interest be bought out? Life insurance funding provisions are common.
Dispute Resolution
How partner disputes are handled: mediation, arbitration, or litigation. Consider including a buyout mechanism for irreconcilable differences.
How to Use This Template
Build a strong partnership foundation with these steps.
- 1
Have candid conversations about expectations before drafting anything
- 2
Value all contributions fairly—this is where misunderstandings start
- 3
Think through worst-case scenarios: what if a partner stops contributing?
- 4
Agree on decision-making authority for different types of decisions
- 5
Address exit scenarios even though discussing them feels uncomfortable
- 6
Consider consulting an attorney, especially for LPs or LLPs that require state filings
- 7
Have all partners sign and keep the original in a safe, accessible location
- 8
Schedule periodic reviews to update the agreement as the business evolves
Frequently Asked Questions
Do we really need a written agreement?
Yes. Without one, state default rules govern your partnership—and those defaults rarely match partners' actual intentions. Written agreements prevent misunderstandings about ownership, profits, and decision-making. They also provide a roadmap for handling difficult situations like partner exits or disputes.
Should profit sharing match ownership percentages?
Not necessarily. Partners might agree to different arrangements—for example, one partner contributes cash while another contributes time, leading to equal ownership but different profit distributions until the cash investment is repaid. The agreement should reflect whatever the partners actually intend.
What happens if we don't address something in the agreement?
State partnership law fills the gaps. This may or may not align with your intentions. For example, many state laws require unanimous consent for major decisions and equal profit sharing regardless of contributions. It's better to address important issues explicitly.
How do we value a partner's interest when they exit?
Common methods include book value, a formula based on revenue or earnings, independent appraisal, or a predetermined buyout amount. The agreement should specify the method and any discounts (minority interest, lack of marketability) that apply.
Can partners have different levels of liability?
In a general partnership, all partners have unlimited personal liability. In limited partnerships, limited partners have liability capped at their investment. For liability protection for all partners, consider an LLP or forming an LLC instead of a partnership.
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