How to Draft a Partnership Agreement

Difficulty: Moderately Easy

Instructions

Step 1

Complete Partnership Agreement Paragraphs 1-4: The first four paragraphs of your partnership agreement are pretty basic.

1. The Name of The Partnership is:________________

2. The Name of The Initial Partners are:____________

3. Place of Business: The principal place of business of the Partnership is:_________

4. Nature of Business: The Partnership shall generally engage in the following: ______

Completing these doesn't typically require any consultation but if you are considering a unique partnership name like “Three Guys Do Business” but want your customers to see a more formal name like “Professional Consultants For Business” you will want to include your DBA (Doing Business As) in paragraph one.
Step 2

Complete Partnership Agreement Paragraphs 5-9: These Partnership Agreement Paragraphs concern the duration of the partnership, Contribution of Capital, Contributed Property, Capital Accounts and Drawing Accounts. Yes, they do sound like things you will have to discuss with your Accountant or Lawyer but if you have the basics down and a good working relationship with your proposed partner you can write them yourself.

5. Duration: The partnership shall commence business on_________ and shall continue until terminated by this agreement, or by operation of law.

6. Contribution of Capital: The partners shall contribute capital in proportionate shares as follows:

7. Allocation of Depreciation or Gain or Loss on Contributed Property: The partners understand...

8. Capital Accounts. An individual capital account shall be maintained for each partner....

9. Drawing Accounts: An individual drawing account shall be maintained for each partner....

Because of the complexity of the wording used in these paragraphs I recommend that you click on the “photo” to the left and print the sample there before completing your partnership agreement.
Step 3

Complete Partnership Agreement Paragraphs 10-16: At this point the partnership agreement becomes fairly basic again excluding the management paragraph. Before writing these sections be sure to have a good understanding on how the partnership is going to be managed and be able to write it out so that there will be no misunderstandings later.

10. Salaries: No Partner shall receive any salary for services rendered to the partnership...

11. Loans by Partners: If a majority of the partners consent, any partner may lend money...

12. Profit and Losses: Net profits of the partnership shall be divided proportionately...

13. Management: The partners have agreed to the management of the partnership as follows:...

14. Books of Accounts: The partnership shall maintain adequate accounting records....

15. Accounting Basis: The books on account shall be kept on a _________ basis.

16. Fiscal Year: The books of account shall be kept on a ________ year basis ….

The partnership agreement sample available for you to click on will help you to understand the terminology to use to write these sections. Remembering that going into partnership with anyone is a challenge you can typically complete these paragraphs fairly quickly.
Step 4

Complete Partnership Agreement Paragraphs 17-22: You're over half way done drafting your partnership agreement. It's amazing how quickly it goes when you know the paragraphs required and the terminology to use. These paragraphs include "what happens if" paragraphs that need to be customized for your partnership but now is the time to get it in writing.

17. Annual Audit: The books of the partnership shall be audited as close to the end of the fiscal year by...

18. Banking: All funds of the partnership shall be deposited in the name of the partnership...

19. Death or Incapacity: The death or incapacity of a partner shall cause...

20. Election of Remaining Partner or Partners to Continue Business: In the even of retirement, death, incapacity, or insanity of a partner, the remaining partner/ partners shall...

21. Valuation of Partner's Interest: The value of a retiring, etc partner shall be the sum of....

22. Payment of Purchase Price: The value of the partner's interest shall be paid.....

The starting of a partnership may not seem like the time to formalize what happens if and when but it really is the best time to get this part done. I have included a sample of these paragraphs for you to use as a template when drafting your partnership agreement.
Step 5

Complete Partnership Agreement Paragraphs 23-?: Drafting a partnership agreement not only formalizes your understanding of how the partnership will work but it also lets you know how well you will work together as business partners. One partner may bring sales and contacts to the partnership and one may bring the creative talent and one may contribute all of the business management skills needed to balance out the partnership for success. There is only one more "what if" paragraph and two "cover yourself" paragraphs in a typical partnership agreement so you are home free after this step.

23. Termination: In the event that the remaining partner or partners does not elect to purchase the interest of the retiring etc. partner....

24. This partnership agreement shall be binding upon and inure to the benefit of the parties, their successors, assigns and personal representatives.

25. Communication and Non-Compete: This agreement is established between the partners and none of it's terms or clauses may be disclosed...

Remembering that a partnership is a meeting of the minds and resources of more than one person that will benefit the whole, you can include additional paragraphs as needed in your draft and customize the sample paragraphs as you choose. The formal document will include a spot for signatures of all the partners and notary signature in order to be filed with your local county clerk.