Partnership Agreements

Before commencing operations, it is strongly suggested that you and your partners sign a partnership agreement laying out the rights and responsibilities of the partners. The agreement normally specifies the amount of capital or the kinds of services that each partner is to contribute to the partnership, and it specifies how profits and losses are to be allocated to the partners. The agreement specifies the identity and status of the partners, the scope and limitation of partnership activities, and the managerial powers and authority of the partners. The agreement may also detail how the partnership is to be operated: who is to work full-time, and in what capacity, how management will be compensated, whether unanimous agreement is needed to admit new partners, how partnership decisions are to be made, the withdrawal or expulsion of partners, and how and when the partnership is to be dissolved.

Drafting a partnership agreement can be complex, and partners may want the assistance of a lawyer to protect their interests, thus driving up costs. But there are strategies for writing a satisfactory partnership agreement without the expense of hiring a lawyer. FindLaw has an overview of creating a partnership agreement and some sample agreements, including actual partnership agreements from various companies. You can also purchase form partnership agreements at office supply stores or various places online.

If you do not sign a partnership agreement, certain aspects of your relationship with your partner will be determined by state law that may be difficult to find or understand, and may not be what you would expect. A written agreement can help to avoid confusion or conflict when unexpected circumstances arise. Even if no partnership agreement exists, two or more people working together can be held to have established a partnership. If an informal partnership decides later to incorporate or officially form another entity, it may be necessary to document the informal partnership for tax purposes or to convey properly the interests of the informal partnership to the new entity.


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