State laws don’t require general or limited partnerships to draft a formal partnership agreement. However, without one, state laws -- which Nolo refers to as "one-size fits-all rules" -- govern most aspects of your business. A formal agreement should include a number of key elements, including basic business information, duties and responsibilities, financials, and how you will handle the eventual dissolution of the business.
Information and Inclusions
The U.S. Small Business Administration recommends that a partnership agreement address certain key aspects of setting up and running the business. These include:
- The business name, whether it’s a general or limited
partnership, and the name and contact information for each partner.
- A short description of the business’s purpose and cash-generating
- A section describing decision-making procedures, as well as
the rights and responsibilities of each partner. This is especially important
in a limited partnership, where duties and responsibilities typically aren’t
- Financial information, including start-up funding, future
contributions and a section describing how the partners will handle profits or
- A section that outlines procedures for handling a
partnership buy-out, the death of a partner and dissolving the partnership.
- A mediation clause to prevent court battles if you can’t
agree on important business issues.
A signed partnership agreement is a legally binding document. However, that doesn’t mean it must be complex and full of legal terms. While you may want to consult an attorney before signing the final draft, you also can create an agreement on your own. Free templates and sample agreements that you can use as-is or customize to fit your situation are available on a number of small business and legal websites.