How to Write a Partnership Agreement (+ Free Template)

  • By: Adam Wire
  • September 27, 2024
partnership agreement
Reading Time: 4 minutes

Starting a business partnership can be an exciting development for your organization.

But without a structured plan outlining the key elements of the partnership, both organizations face complications and risk. Further, a lack of clarity over the roles of each board member can potentially lead to regulatory problems in the future. 

Any legal entity would be wise to avoid these problems by drafting a partnership agreement. Having a well-defined agreement helps set expectations and provides a roadmap for managing changes or resolving conflicts.

This article explains the importance of a partnership agreement and walks you through the steps to create an agreement for your organization.

What is a Partnership Agreement?

A partnership agreement is a legally binding document that outlines the key terms and conditions that govern a business partnership between two or more parties. Like a contractor agreement, its purpose is to define each partner’s rights and responsibilities, including their obligations, roles, and how profits are shared between parties.

The partnership agreement covers essential aspects of the partnership, including the purpose of the partnership; duration of the partnership; capital contributions of each partner; division of profits and losses, and more. 

It can also address issues such as the ownership and transfer of partnership interests, dispute resolution strategies, and arrangements for the dissolution and termination of the partnership. 

The board of directors’ role in the writing of a partnership agreement will differ among organizations depending on the structure outlined in their operating agreement. The board could be directly responsible for overseeing the drafting process, protecting the interests of partners, and ensuring the agreement is compliant with all relevant laws and regulations. 

Companies may also select an individual or committee to conduct these tasks. The scope of a partnership agreement can be further strengthened with the addition of a confidentiality agreement that provides legal protections for private information. 

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How to Write a Partnership Agreement

A partnership agreement ensures each party has a full understanding of their roles in the business arrangement. 

Here are some tips on how to write a partnership agreement: 

1. Define Partnership Structure

The best place to start when writing a partnership agreement is to define the key details of the structure. Your partnership can take many forms, so you must declare if you’re going into business with an individual partner, limited liability company (LLC), corporation, or trust. 

The most common types of partnerships are: 

  • General partnerships: Two or more individuals share responsibilities, profits, and liabilities of a jointly-owned business. 
  • Limited liability partnership: Every partner agrees to limited personal liability for debts or claims.
  • Limited partnership: General partners have complete management control and unlimited debt liability, while limited partners only have liability up to the amount of their investment in the business.

This part of the agreement should also include: 

  • Your business name
  • The primary business of the partnership
  • What type of business entity is being formed
  • Your place of business and the address of your main office (you can list the home address of your partner if you don’t have a centralized headquarters)
  • Who is eligible to become a partner
  • When the partnership starts

You should also note where primary business activities will take place. These details clarify the tasks of each business partner and are also needed for legal and tax purposes. 

2. Outline Capital Contributions and Ownership

It’s important to define what each partner brings to the table before going into business. Capital contributions signify the amount of time, money, and assets each partner contributes to the partnership. The partnership agreement can also include non-monetary contributions if partners agree on their financial value.

3. Detail Profit, Loss, and Distribution Arrangements

Another key aspect of partnership agreements is to determine the distribution of profits and losses for each partner. The agreement should detail their level of investment and ownership percentage. This information specifies how ownership interests can be sold or how new partners can join the business. 

Include financial arrangements such as:  

  • If the partnership will require a unanimous or majority vote for financial decisions 
  • If profits and losses will be divided equally, by a fixed percentage, or in relation to their capital contributions
  • If partners will receive compensation for services rendered 

4. Set Decision-Making and Management Protocols

The daily management structure of the business has to be defined to streamline your new decision-making process. Partners must agree on the following aspects of your operations:

  • The partnership’s meeting schedule
  • How special meetings can be called
  • Voting methods
  • Who will be in charge of the partnership’s day-to-day interests
  • Who has the authority to sign contracts on the partnership’s behalf

5. Plan for Changes and Contingencies

Your partnership agreement should outline strategies for succession planning so the partnership can continue despite unexpected or sudden events, such as the retirement, voluntary or involuntary departure, or death of a partner. Review the partnership agreement on a consistent time scale to ensure it remains effective as the landscape changes. 

6. Include Legal Provisions and Finalize the Agreement

Your partnership agreement should also include legal provisions to protect each partner in the event of a dispute or other problems. Consult with a lawyer to make sure the agreement is legally compliant with current regulations and protects the interests of all partners. Once your counsel signs off on the agreement, you can move forward with the partnership

Partnership Agreement Template

In summation, here’s a general template for partnership agreement that you could follow:

  • Partnership Name and Business Purpose
  • Term of Partnership
  • Capital Contributions
  • Ownership and Profit Sharing
  • Management and Decision-Making
  • Duties and Responsibilities
  • Withdrawal, Death, or Incompetency of a Partner
  • Admission of New Partners
  • Confidentiality and Non-Compete
  • Termination and Dissolution
  • Governing Law
  • Miscellaneous Provisions
  • Signatures 

Improve the Effectiveness of Your Board with OnBoard

Partnership agreements set practical expectations and protect each partner from potential risk. The goal of these agreements is to help both organizations get the most out of the partnership with minimal disruption or risk.

OnBoard’s board management software is built specifically to help boards collaborate more effectively. 

OnBoard’s core features simplify board activities, enable boards to conduct votes, perform assessments, and sign documents using eSignatures — all from any location, at any time. OnBoard also provides an unlimited system of record, keeping all critical documents organized and easily accessible to support seamless collaboration.

Want to see more? Download our free board meeting minutes template to learn how our tools can benefit your boardroom. 

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About The Author

Adam Wire
Adam Wire
Adam Wire is a Content Marketing Manager at OnBoard who joined the company in 2021. A Ball State University graduate, Adam worked in various content marketing roles at Angi, USA Football, and Adult & Child Health following a 12-year career in newspapers. His favorite part of the job is problem-solving and helping teammates achieve their goals. He lives in Indianapolis with his wife and two dogs. He’s an avid sports fan and foodie who also enjoys lawn and yard work and running.