What is a partnership agreement?
A partnership agreement is a contract between two or more people who run a business together and share its profits. It records how much each partner puts in, how profits and losses are split, who makes which decisions, how much each partner can take out, and what happens if one partner wants to leave, falls ill or dies.
In many places a general partnership can come into existence without any paperwork, simply because two people run a business together for profit. Where that happens, default rules set by law usually fill the gaps – and they may not match what the partners intended. A written agreement lets you choose your own rules.
Speak to a lawyer before you sign
A partnership is a long-term relationship with real financial risk, so treat this template as a starting point and a checklist for your conversation, not the finished document. We strongly recommend that each partner has a lawyer review the agreement, and that you speak to an accountant about tax. In particular:
- Personal liability. In a general partnership, partners are usually personally liable for the business's debts – including debts the other partner runs up. A limited liability company (LLC), limited liability partnership (LLP) or corporation may give more protection, depending on where you are.
- Tax treatment of profits, drawings and contributed property differs by country.
- Registration rules for partnerships and business names vary by state and country.
Key clauses explained
| Clause | What to decide |
|---|---|
| Capital contributions | What each partner puts in – cash, equipment, vehicles – and at what value. |
| Profits and losses | Equal split, a fixed ratio, or in line with capital. |
| Drawings | How much each partner can take out monthly before the year's profit is known. |
| Management and voting | Which decisions either partner can make alone and which need both. |
| Withdrawal and buy-out | Notice to leave, and how the departing partner's share is valued and paid. |
| Dissolution | The order in which money is paid out when the business closes. |
How to use this template
- Enter each partner's full legal name and address, and the business name and purpose.
- Describe each partner's capital contribution, including the agreed value of any equipment.
- Choose the profit split, monthly drawings limit and the spending limit for decisions made alone.
- Pick how a buy-out price is set, and decide whether to include mediation and a non-compete.
- Download the draft, discuss every clause together, take legal and tax advice, and sign only once you both agree.
Common mistakes
- Relying on a handshake. Disagreements are far easier to settle using rules agreed when everyone was getting along.
- Ignoring the exit. Agree now how a partner leaves and how they are paid out.
- Mixing money. Keep a separate business bank account and record every drawing.
- Unequal effort, equal split. If one partner will work full time and the other part time, reflect that in the profit split or a salary agreed in writing.
Once you are trading, bill customers with the invoice generator, price jobs with the estimate generator and protect business ideas you share with others using an NDA.
This template is general information, not legal advice. Partnership, liability and tax rules differ significantly between countries and states; have a qualified lawyer review your partnership agreement before you sign it.
Frequently asked questions
Do we need a written partnership agreement?
It is not always legally required – in many places a partnership can exist without one – but it is strongly recommended. Without it, default rules set by law decide matters such as profit shares and what happens when a partner leaves, and those rules may not match what you intended.
Are partners personally liable for business debts?
In a general partnership, usually yes: each partner can be personally responsible for the partnership's debts, including those incurred by the other partner. If that worries you, ask a lawyer whether an LLC, LLP or company would suit you better where you operate.
How should partners split profits?
There is no single right answer. Equal splits are common when partners contribute similar money and effort; otherwise partners may split by a fixed ratio, in proportion to capital, or pay a salary to the partner who works more before sharing the rest.
What happens if a partner wants to leave?
Under this template, the leaving partner gives 90 days' notice and the remaining partner can either buy their share at a price set by the agreed method, or dissolve the partnership and divide what is left after debts are paid.
Can we use this template for more than two partners?
This template is designed for two partners with equal votes. With three or more, you would need to decide on majority or unanimous voting, deadlock rules and how buy-outs work between several partners – a lawyer can adapt it for you.
