Starting a business with one or more partners can be incredibly rewarding—but only if the terms of that partnership are clearly defined and legally enforceable. A well-crafted partnership agreement is not just a formality—it’s the foundation of a successful, conflict-free business relationship.
At Lforlaw.com, we connect business owners and entrepreneurs with experienced business attorneys who can help you draft, negotiate, or review partnership agreements that protect your interests and comply with U.S. laws in your state.
What Is a Partnership Agreement?
A partnership agreement is a legally binding contract that outlines how a business with two or more owners will be run. It defines the roles, responsibilities, ownership stakes, and profit-sharing arrangements between partners. It also outlines procedures for resolving disputes, adding or removing partners, and dissolving the partnership if needed.
Without a formal agreement, your business will be governed by your state’s default partnership laws, which may not reflect your intentions or business realities.
Types of Partnerships in the U.S.
There are several forms of partnerships recognized in the United States, and the structure you choose will impact the content of your agreement:
- General Partnership (GP): All partners share equally in management and liability.
- Limited Partnership (LP): Includes general partners (with full control and liability) and limited partners (investors with no operational role and limited liability).
- Limited Liability Partnership (LLP): Offers liability protection to all partners. Common among professionals like lawyers, accountants, and doctors.
- Limited Liability Limited Partnership (LLLP): A newer hybrid that provides liability protection to general partners in a limited partnership.
Each structure carries different tax, liability, and regulatory consequences, which is why legal guidance is essential from the start.
Key Clauses in a Partnership Agreement
While every business is different, a well-drafted partnership agreement should include the following:
1. Business Purpose
Clearly state the purpose and scope of your business to avoid future misunderstandings.
2. Capital Contributions
Specify how much each partner is contributing (cash, property, services), and what happens if additional capital is required.
3. Ownership Percentages & Profit Sharing
Define each partner’s percentage of ownership and how profits (or losses) will be distributed.
4. Roles and Responsibilities
Outline who is responsible for what—including day-to-day management, decision-making authority, and signing contracts.
5. Voting and Decision-Making
Establish voting thresholds for major decisions, such as taking on debt, hiring executives, or expanding operations.
6. Salary and Draws
Specify if and how partners will be compensated beyond profit distributions.
7. Dispute Resolution
Include a clause for how disagreements will be resolved—through mediation, arbitration, or court.
8. Exit Strategies and Buyouts
Define what happens if a partner wants to leave, retire, dies, or becomes disabled. Include a buy-sell agreement to set terms for valuation and transfer of ownership.
9. Non-Compete and Confidentiality
Protect the business by prohibiting partners from competing with the firm or disclosing sensitive information.
10. Amendment Procedures
Explain how the agreement can be changed if the business evolves or new partners join.
Why You Need a Written Agreement
Verbal partnerships are legally valid in most states—but without written terms, disputes are hard to resolve and can become deeply personal and financially devastating. A formal agreement helps:
- Avoid misunderstandings
- Establish clear expectations
- Protect personal and business assets
- Create a blueprint for long-term growth
- Provide a legal basis in the event of litigation
Even close friends and family members should formalize their business arrangements.
Common Pitfalls in Partnership Agreements
- Failing to clearly define ownership percentages
- Not accounting for “sweat equity” (non-financial contributions)
- Leaving out an exit or succession plan
- Assuming equal decision-making authority works for everyone
- Copy-pasting generic templates that don’t reflect your business model
A custom agreement drafted by a legal professional ensures compliance with your state’s Uniform Partnership Act (UPA) or Revised Uniform Partnership Act (RUPA) and is tailored to your unique goals.
When to Seek Legal Help
You should consult an attorney when:
- Starting a new business with partners
- Bringing in a new partner or investor
- Restructuring an existing partnership
- Facing a dispute or potential lawsuit
- Planning to sell or merge the business
Even if you already have a partnership agreement in place, it should be reviewed and updated regularly to reflect changes in the business or applicable law.
Lforlaw.com Makes It Easy to Build a Strong Legal Partnership
Business partnerships should be built on trust—but reinforced with law. At Lforlaw.com, we connect you with attorneys who can draft partnership agreements that are thorough, enforceable, and aligned with your business goals.
For personalized legal guidance and assistance with partnership agreements, contact us today.
