When two or more people run a business together for profit, the law may treat them as a partnership even without paperwork. A written agreement replaces default rules with terms you chose.
Why put it in writing
In a general partnership, each partner is usually personally liable for the partnership's debts and can be bound by the others' business decisions. Without an agreement, state default rules can split profits equally regardless of who contributes more.
What to include
- Each partner's contribution of money, property or work.
- How profits, losses and draws are divided.
- Decision-making authority and what requires everyone's consent.
- Roles and time commitments.
- How to add, remove or buy out a partner.
- Dispute resolution methods.
- What happens on a partner's death or exit.
Types of partnerships
- General partnership, with shared management and unlimited liability.
- Limited partnership, with at least one general partner and limited partners who do not manage.
- Limited liability partnership, available mostly to professionals, with added liability protections.
Next steps
Consider whether an LLC or other entity offers better liability protection. A business attorney and an accountant can help you pick a structure and draft terms that suit your situation.
Frequently asked questions
Do partners need to register?
Requirements vary. General partnerships often need only local business licenses, while limited partnerships file with the state.
What is a buy-sell clause?
It sets how a partner's share is valued and bought when they leave, die or become disabled.