How to Create a Partnership Agreement
A business partnership is the association of two or more people who are co-owners of a for-profit business. Partnership agreements only require a mutual agreement to go into business together. The agreement may be verbal or drafted in a written contract. Partnerships may require submitting written terms of the partnership agreement for tax, banking and other financial purposes. Creating a partnership agreement document includes writing the name of the business, partner contributions and ownership, allocation of profit and loss, authority and decision-making, individual responsibilities, new partner admittance, dispute resolution and withdrawal or dissolution.
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Things You'll Need
- One or more business partners
- Word processor and printer or paper and writing utensil
Instructions
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Name your business partnership and register the name with your state registrar. The state registrar may be a county office or the Department of State in your state. If the business name does not contain the first and last name of each partner, then you must register a fictitious business name by obtaining a name registration form by phone, in person or online.
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State each partner’s required contribution to or investment in the partnership, and each partner’s percentage of ownership. Contributions may include capital, assets, time or services. Statements of contribution may include required weekly or daily contribution hours or future investment.
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State each partner’s ability to control the partnership in terms of authority and decision-making power. Some partnerships require all partners to agree on all contracts that bind the partnership. Small partnerships may make virtually all decisions together, while others may require unanimous agreement with only critical decisions or specified activities. If the authority of each partner is not stated, then each partner holds the legal right to control the partnership without consent of the other partners.
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Create guidelines that establish roles for each partner. A partner may be responsible for finance, accounting, hiring, purchasing or marketing. Evaluate the activities required to run the partnership and assign all the roles necessary to fulfill those requirements. Statements of responsibilities may include specific titles for each partner.
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State the procedure for admitting new partners. New partner admittance may occur in partnerships with operations expansion, finance acquisitions, new management roles or employee promotions.
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Write a section that provides details about handling disputes between or among the partners. Disputes may include inability to meet investment or time obligations, conflicts of interest, overreach of authority or differences on critical decisions. The dispute resolution should dictate the kinds of disputes that invoke particular procedures. Some disputes may require legal arbitration while court proceedings might be more appropriate for others. Other disputes may invoke a voting procedure, penalties or a partner’s dismissal.
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Write the rules that apply when a partner withdraws from the partnership in a buy-out plan. Partners may withdraw due to retirement, resignation, sale of the partner’s interest in the company, divorce, foreclosure secured by a partner’s interest, personal bankruptcy, disability, death or incapacity. Withdrawal usually invokes a buy-out procedure. This lays out the procedure for determining the price for that partner’s company interest and who is eligible to buy that partner’s share of the business, and it may enumerate the events that trigger a buy-out procedure. If a buy-out agreement is not stated, then the partnership dissolves when any partner withdraws his position.
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Tips & Warnings
One or more partners must assume the business risks of the partnership and purchase insurance to protect the business.
References
Resources
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