Key Takeaways

  • A partnership agreement should ideally be in writing to prevent future disputes and clarify partner roles.
  • Even though not legally required in most states, written agreements help ensure smooth operations and continuity.
  • A comprehensive agreement includes profit sharing, management duties, dispute resolution, and exit strategies.
  • Digital tools and templates exist, but legal guidance ensures your agreement covers state laws and complex scenarios.
  • If you're saying "I need a partnership agreement for my business," now is the time to engage a qualified attorney.

Does a partnership agreement have to be in writing? It's best to draft a partnership agreement at the beginning of the partnership.

Many partnerships are formed naturally because the people who are involved in the business share the same goals, so their partnerships don't need formation documents to exist. However, if members are to proceed with the partnership, it would behoove them to make a formal, written agreement.

What a Partnership Agreement Is

A partnership agreement (also called the articles of partnership) is a document that is signed by the members of a business group.

  • A partnership agreement in a limited liability company is referred to as an Operating Agreement.
  • In a corporation, this agreement is referred to as a Shareholder Agreement.
  • In a general partnership, this is just called a Partnership Agreement.

The best time to draft a partnership agreement is when the company is first formed. At this time, partners should discuss their expectations for the business and what they expect from each other.

What Happens If You Don’t Have a Written Agreement

While it’s legal to run a partnership without a written agreement in many states, doing so comes with serious risks. Without a documented agreement, your business will default to the partnership laws of your state—which may not align with your business goals or expectations. For example:

  • Equal profit sharing: Even if one partner contributes more time or capital, the state may require profits to be split equally unless stated otherwise.
  • Unplanned dissolution: In some jurisdictions, the departure, death, or incapacitation of a single partner can automatically dissolve the partnership.
  • Disputes and confusion: Without clarity on roles and responsibilities, even minor disagreements can escalate and hinder business performance.

For entrepreneurs thinking, "I need a partnership agreement for my business," it’s far better to have expectations in writing than to rely on default state statutes.

Why Partnership Agreements Are Beneficial

Partners don't need to file their articles of partnership with a government agency, but it's good for them to have a written document to refer to later. You never know how your company might grow, so it pays to talk about your expectations and vision. With that in mind, a partnership agreement serves the following purposes:

  • It's a governing document for the partnership. Without a written agreement in place, the partnership will be governed by the default rules of the state where it's based.
  • Written partnership agreements protect the company and each partner's investment in it. If there is no written partnership agreement, partners are not allowed to draw a salary. Instead, they share the profits and losses in the business equally.
  • The agreement outlines the rights, responsibilities, and duties each partner has to the company and to each other. This, in turn, will prevent members from feeling like they are shouldering more of the burden than others.
  • When there is no partnership agreement in place, the partnership might ultimately dissolve when a member leaves by retirement, death, or by selling his interest in the business.

You never know what can happen in the future, especially if one partner leaves or members start arguing about profits or the direction of the company. Head off future disputes before they arise.

Real-World Scenarios That Highlight the Need for an Agreement

Understanding the benefits of a partnership agreement becomes clearer when you look at real-world examples:

  • Silent Partner Conflicts: Suppose a silent partner unexpectedly demands operational control. A well-written agreement would restrict their management role while clarifying their financial interest.
  • Unequal Contributions: One partner puts in more money, another puts in more time. A strong agreement outlines compensation models that match each partner’s contribution type.
  • Exit or Buyout Situations: If one partner wants to leave or sell their interest, the agreement should define buyout terms, valuation methods, and transfer procedures.
  • Adding New Partners: Bringing on a new partner without terms for admission and capital contribution can cause legal and financial disruption.

If you've been thinking, "I need a partnership agreement for my business," these situations show exactly why that instinct is right.

What Should Be in a Partnership Agreement

Each partnership agreement is unique because there are no specific requirements for one. However, all partnership agreements must list the name of the business, the business's location, and the company's mission. Depending on the type of partnership you have, you should also include at least six sections, like:

  • A section that deals with the allocation of profits.
    • How will profits be divided among partners?
    • Is each partner's take proportional to their investment or are profits split evenly among partners?
  • A section that deals with taxes, losses, and debts.
    • Who is responsible for filing tax forms for the company?
    • How much liability does each partner have?
  • A section that deals with the allocation of shares.
    • How much interest does each partner have in the company?
    • Like profits, it is a proportional system or evenly divided among members?
  • A section that deals with the management of the company.
    • Who will make major decisions for the company?
    • Who is responsible for the day-to-day management and bookkeeping?
    • How much control do limited partners have?
  • A section about voting rights.
    • Will partners be able to vote on major decisions?
    • Are there protections for minority owners?
    • Is there any way to break a tie?
  • Clauses that deal with the future of the partnership.
    • How could the partnership be terminated?
    • What are the conditions under which partners can sell their shares in the company?
    • What are the conditions of transfer in case one partner becomes ill, incompetent, disengaged, or dies?

Additional Clauses You May Want to Include

Beyond the essential sections, several optional but highly recommended clauses can help future-proof your agreement:

  • Non-compete clauses: Prevent partners from starting a similar business that competes with the partnership during or after their involvement.
  • Confidentiality provisions: Ensure that proprietary methods, trade secrets, and sensitive information are protected.
  • Dispute resolution: Detail steps for resolving disagreements, such as mediation or arbitration, before taking legal action.
  • Capital calls: Define how additional funding will be handled—will partners be required to contribute more capital if needed?
  • Amendment process: Explain how the agreement can be modified. Does it require unanimous consent or a majority vote?

When business owners say, "I need a partnership agreement for my business," they often overlook these customizable features—yet they are key to long-term success.

Why You'll Need a Lawyer to Draft Your Partnership Agreement

While having a partnership agreement generally is preferable to having none, not all are perfect. Get an attorney to help you draft the best partnership agreement possible. Without an attorney, you run the risk of drafting an agreement that contains confusing language. An agreement drafted by an attorney will account for every possible scenario that could affect your new company.

Can I Use a Template or Online Tool?

There are many online templates and digital services that offer basic partnership agreements. While these can be helpful for initial planning, they rarely provide the depth needed for complex business relationships or unique legal circumstances. Here's why caution is necessary:

  • Generic language: Templates are often one-size-fits-all and may not comply with your state’s partnership laws.
  • Missing details: Important areas like tax allocation, partner withdrawal, or voting rights might be overlooked.
  • Limited dispute planning: Templates may not provide robust mechanisms for handling disagreements or business exits.

If you’ve ever thought, “I need a partnership agreement for my business, but I don’t know where to start,” an experienced business attorney is the best place to begin. You can find one through UpCounsel to ensure your agreement is tailored and enforceable.

Frequently Asked Questions

1. Does a partnership agreement have to be in writing? No, but a written agreement is highly recommended to protect all partners and define the terms of the partnership.

2. When should I create a partnership agreement? Ideally, before you start operating your business or exchange any funds or assets. Early drafting helps prevent misunderstandings.

3. Can I write my own partnership agreement? Yes, but it’s best reviewed by a legal professional to ensure compliance with state laws and coverage of key legal points.

4. What if my partner and I disagree after signing an agreement? If your agreement includes a dispute resolution clause, it will outline how to resolve such conflicts, often through mediation or arbitration.

5. What if a partner wants to leave the business? A good agreement includes an exit strategy, buyout procedures, and terms for transferring ownership.

If you need help drafting your written partnership agreement, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.