What is a Partnership Agreement?
A partnership agreement is a binding contract between partners that contains the terms and conditions of the partnership. However, before we dig deeper into the nature of a partnership agreement it is important that you first understand what a partnership is.
Generally, a partnership is an agreement between two or more people to contribute money, property, or labor to come up with a common fund and divide the profits among themselves.
Unlike other agreements, the basic foundation of a partnership is trust. All partners have specific obligations to perform which is why a written agreement is essential.
Purpose of a Partnership Agreement
When you enter a partnership your partners will most likely ask you to sign a partnership agreement.
Generally, a partnership agreement spells out the rights and responsibilities of every partner. It is the best way to assure that the partners perform each of their responsibilities and ensure that the essence of the partnership is carried out.
In case one of the partners runs away with the partnership money, you can use the partnership agreement to enforce your partner’s obligation.
What to Include in Your Partnership Agreement
The following is a list of provisions that most partnership agreements cover.
Name of partnership. You need to agree on the name of your partnership which can be a combination of your names or a fictitious business name such as “Westside Home Repairs.”
Contributions to the partnership. It is important that you put into writing whatever you have contributed and the percentage share for every partner.
Allocation of profits, losses, and draws. This explains how you will divide the profits and losses among yourself.
Partner’s authority. You can indicate in your partnership agreement that each partner cannot bind the partnership without the consent of the other partners.
Partnership decision-making. What if you cannot agree on a certain matter? This part of your agreement will set the rules as to what constitutes minority and majority decision.
Management duties. All partnerships are unique to each other. You may assign one partner as a managing partner whose role is solely to manage the business. But you go further into details and explain who should keep the books, deal with the employees or negotiate with suppliers.
Admitting new partners. Eventually you will expand you may want to expand your business soon and bring in new partners. Hence, you should agree on a procedure that you can follow when admitting new partners.
Withdrawal or death of a partner. You should also set up a buyout scheme in case one of your partners perishes or withdraws.
Dispute settlement and jurisdiction. You should include how you should settle your dispute and which court of jurisdiction would hear your case especially if your partner is a foreign partner.
If you would like to create a custom partnership agreement then you can also build one using Law Depot’s Custom Partnership Agreement
What is Uniform Partnership Act?
The Uniform Partnership Act provides governance for business partnerships all around the United States. Save for Louisiana, each state has distinct partnership act that governs the basic legal rules for every partnership.
Knowing your state law is important when drafting your partnership agreement because every agreement needs to comply with state law standards in order to be valid. In case you would want to set out unique rules in your partnership agreement, you should make sure that it doesn’t circumvent your state law.
Do You Need an Attorney to Prepare Your Partnership Agreement?
When doing your own partnership agreement, you may run the risk of not getting the wording right which is why it is important that you have your agreement drafted by a counsel.
Your attorney can advise you regarding the best terms and conditions that you can set for the best interested of the partnership. Similarly, you can get advice about significant consequences that you should be aware of when entering into partnership. You can also use free software from Law Depot to create a Do-it-yourself Partnership Agreement.
Don’t be intimidated with a partnership agreement. Here is an example of a partnership agreement.
Free Partnership Agreement Template
You can download the Microsoft word version at the end if you would like the properly formatted version.
This PARTNERSHIP AGREEMENT (the AGREEMENT) is entered on this [DAY] day of [MONTH], of [YEAR], by and between [PARTY 1] [PARTY 2], and [PARTY 3.]].
SECTION I: Functions of the PARTNERSHIP
All of the PARTNERS shall:
- Form a general partnership (the PARTNERSHIP) for the purpose of, in accordance with the LAWS of [STATE].
- The PARTNERSHIP shall operate under the name of [BUSINESS NAME].
- The PARTNERSHIP shall begin on the EFFECTIVE DATE of [DATE].
- The PARTNERSHIP shall last for a TERM of [DURATION].
- The purpose of the PARTNERSHIP is to oversee, manage, and otherwise facilitate the following business functions:
- ______________________________________
- ______________________________________
- _____________________________________
- Any partner cannot sell or encumber any personal or real property of the partnership without the consent of ALL partners.
- Meetings between the PARTNERS shall be held every [Date of the Month] for the duration of the PARTNERSHIP AGREEMENT.
SECTION II: Capital
- The initial CAPITAL contribution from the FIRST PARTY is a total of [AMOUNT IN WORDS (AMOUNT IN NUMBER).]
- The initial CAPITAL contribution from the SECOND PARTY is a total of [AMOUNT IN WORDS (AMOUNT IN NUMBER).]
- The PARTNERS shall deposit the funds into a SPECIAL BANK ACCOUNT at [BANK], of [CITY] on [DATE].
- Any profit or loss resulting from the functions of the PARTNERSHIP shall be deposited and/or withdrawn from the SPECIAL BANK ACCOUNT.
- Each PARTNER shall provide a BANK ACCOUNT for their own contributions, which profit and/or loss shall transact to/from at [NUMBER OF DAYS] intervals, in proportion to the value of their respective contributions.
- The balance of the SPECIAL BANK ACCOUNT shall constitute the CASH-ON-HAND of the PARTNERSHIP, for all purposes including, but not limited to, taxation and valuation.
SECTION III: Management
- The PARTNERS designate [NAME OF PARTNER] as the EXECUTIVE responsible for the day-to-day operation of the PARTNERSHIP.
- The EXECUTIVE shall see to the maintenance of records and books, consisting of all account balances, assets, liabilities, and all other revenue information pertaining to the PARTNERSHIP.
- The PARTNERS reserve the right to inspect, audit, or otherwise request access to the records and books of the PARTNERSHIP, at any time in which case the EXECUTIVE shall make the records available on demand.
SECTION IV: Annual Audit
- The PARTNERS shall conduct a complete and thorough AUDIT of all accounts, records, and books of the PARTNERSHIP on a yearly basis.
- The PARTNERS shall conduct an annual accounting of the PARTNERSHIP every [date].
- At the request of the PARTNERS, all financial records shall be reviewed a minimum of semi-annually, throughout the year.
SECTION V: Compensation
The PARTNERS shall receive compensation as follows:
[DESCRIBE COMPENSATION TERMS]SECTION VI: Transfers to a Trust
Any PARTNER ma, transfer interest in the PARTNERSHIP to a living TRUST, of which the transferring PARTNER is the grantor and sole trustee, upon giving written notice to the other PARTNERS.
SECTION VII: Partner Removal
- A PARTNER may be removed, as deemed necessary, only by a majority vote of those PARTNERS with a controlling share of the CAPITAL of the PARTNERSHIP.
- Any such PARTNER shall be notified in writing of their removal.
- Any PARTNER removed from the PARTNERSHIP shall be paid for all contributions, minus any liabilities incurred, and plus any gains or interest he/she is entitled to, immediately upon removal from the PARTNERSHIP.
SECTION VIII: Partner Withdrawal
- Any PARTNER may withdraw, in part or in full, from the PARTNERSHIP at any time.
- Notification of withdrawal must be made in writing.
- Funds shall be withdrawn from the SPECIAL BANK ACCOUNT of the PARTNERSHIP, shall be based on the most recent valuation of the PARTNERSHIP at the time, and shall be transferred to the bank account of record of the withdrawing partner.
- The PARTNERSHIP shall continue to function as a taxable entity so long as enough CAPITAL remains to do so, regardless of the withdrawals of individual PARTNERS.
SECTION IX: Termination
- The PARTNERSHIP may be terminated by the mutual agreement of the PARTNERS whose capital represents a majority stake in the PARTNERSHIP.
- Prior to termination of the PARTNERSHIP, all PARTNERS are to be advised, in writing, that termination is being considered, no fewer than [NUMBER] days before the termination may transpire.
- Upon the decision to terminate the PARTNERSHIP, all PARTNERS shall be notified by the EXECUTIVE, immediately.
- All assets shall be distributed accordingly to all PARTNERS upon the termination of the PARTNERSHIP. Re-payment shall correspond to the percent contributed by each respective PARTNER, except as outlined elsewhere, as applicable.
- Payments shall be made to the bank accounts of record for each PARTNER, upon dissolution of the PARTNERSHIP.
SECTION X: Death of a Partner
- The PARTNER shall only be considered withdrawn from the PARTNERSHIP upon the notification of the death of such partner. In case of death, the PARTNERSHIP should be notified within 30 days from the death of the partner.
- At such a time, all contributions and all other funds owed to the PARTNER shall be transferred to the designee, agent, or trust of the deceased PARTNER’s choosing.
SECTION XI: Payment
- All withdrawals may be made in cash or securities, or some combination thereof, at the discretion of the drawer.
- In cash transfers, the drawer (or his/her designate entity) is entitled to an amount equal to the lesser of [PERCENT] of the value of the capital account being withdrawn from, or the value of the capital account being withdrawn, less any costs incurred in the transaction of cash or securities.
- For securities withdrawals, the PARTNERS shall use a third-party BROKER. The brokerage fees resulting from the withdrawal shall be covered by the drawer.
SECTION XII: Forbidden Acts
For the TERM of this PARTNERSHIP AGREEMENT, no PARTNER may:
- Obligate or bind the PARTNERSHIP to any function other than those outlined in the AGREEMENT above.
- Transfer, sell, or loan against his/her stake in the PARTNERSHIP, except with the consent by a majority of all other PARTNERS, by simple vote.
- Use the PARTNERSHIP name, likeness, or logo for any purpose other than those written in this AGREEMENT.
This PARTNERSHIP AGREEMENT shall be binding upon the signatures of the PARTNERS.
[PARTY 1]_________________________________ ______________
[NAME], [TITLE] DATE [PARTY 2]________________________________ ______________
[NAME], [TITLE] DATE [WITNESS]_________________________________ ______________
DATE
[WITNESS]_________________________________ ______________
DATE
If you would like a more specific form tailored to your needs you can try out Law Depot’s Free Do-it-yourself Partnership Agreement
Master Partnership Agreement Downloadable Microsoft Word File
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Sample Completed Partnership Agreement
SAMPLE 2
This PARTNERSHIP AGREEMENT (the AGREEMENT) is entered on this 22nd day of August, 2020, by and between Alex Wilson, Patricia Wilson and Maggie Taylor.
SECTION I: Functions of the PARTNERSHIP
All of the PARTNERS shall:
- Form a general partnership (the PARTNERSHIP) for the purpose of, in accordance with the LAWS of California.
- The PARTNERSHIP shall operate under the name of Events Video & Photography.
- The PARTNERSHIP shall begin on the EFFECTIVE DATE of October 1, 2020.
- The PARTNERSHIP shall last for a TERM of 5 years.
- The purpose of the PARTNERSHIP is to oversee, manage, and otherwise facilitate the following business functions:
1. Provide photo and video coverage for weddings locally
- Any partner cannot sell or encumber any personal or real property of the partnership without the consent of ALL partners.
- Meetings between the PARTNERS shall be held every January 15th for the duration of the PARTNERSHIP AGREEMENT.
SECTION II: Capital
- The initial CAPITAL contribution from the FIRST PARTY is a total of TWO THOUSAND EIGHT HUNDRED DOLLARS ($2, 800).
- The initial CAPITAL contribution from the SECOND PARTY is a total of TWO THOUSAND EIGHT HUNDRED DOLLARS ($2, 800)]
- The PARTNERS shall deposit the funds into a SPECIAL BANK ACCOUNT at BANK OF CALIFORNIA of the CITY FOF CALIFORNIA on or before October 1, 2020.
- Any profit or loss resulting from the functions of the PARTNERSHIP shall be deposited and/or withdrawn from the SPECIAL BANK ACCOUNT.
- Each PARTNER shall provide a BANK ACCOUNT for their own contributions, which profit and/or loss shall transact to/from at 15 days intervals, in proportion to the value of their respective contributions.
- The balance of the SPECIAL BANK ACCOUNT shall constitute the CASH-ON-HAND of the PARTNERSHIP, for all purposes including, but not limited to, taxation and valuation.
SECTION III: Management
- The PARTNERS designate Alex Wilson] as the EXECUTIVE responsible for the day-to-day operation of the PARTNERSHIP.
- The EXECUTIVE shall see to the maintenance of records and books, consisting of all account balances, assets, liabilities, and all other revenue information pertaining to the PARTNERSHIP.
- The PARTNERS reserve the right to inspect, audit, or otherwise request access to the records and books of the PARTNERSHIP, at any time in which case the EXECUTIVE shall make the records available on demand.
SECTION IV: Annual Audit
- The PARTNERS shall conduct a complete and thorough AUDIT of all accounts, records, and books of the PARTNERSHIP on a yearly basis.
- The PARTNERS shall conduct an annual accounting of the PARTNERSHIP every 15th of December.
- At the request of the PARTNERS, all financial records shall be reviewed a minimum of semi-annually, throughout the year.
SECTION V: Compensation
The PARTNERS shall receive compensation as follows:
$1000 to be given every 15th day of the month
SECTION VI: Transfers to a Trust
Any PARTNER ma, transfer interest in the PARTNERSHIP to a living TRUST, of which the transferring PARTNER is the grantor and sole trustee, upon giving written notice to the other PARTNERS.
SECTION VII: Partner Removal
- A PARTNER may be removed, as deemed necessary, only by a majority vote of those PARTNERS with a controlling share of the CAPITAL of the PARTNERSHIP.
- Any such PARTNER shall be notified in writing of their removal.
- Any PARTNER removed from the PARTNERSHIP shall be paid for all contributions, minus any liabilities incurred, and plus any gains or interest he/she is entitled to, immediately upon removal from the PARTNERSHIP.
SECTION VIII: Partner Withdrawal
- Any PARTNER may withdraw, in part or in full, from the PARTNERSHIP at any time.
- Notification of withdrawal must be made in writing.
- Funds shall be withdrawn from the SPECIAL BANK ACCOUNT of the PARTNERSHIP, shall be based on the most recent valuation of the PARTNERSHIP at the time, and shall be transferred to the bank account of record of the withdrawing partner.
- The PARTNERSHIP shall continue to function as a taxable entity so long as enough CAPITAL remains to do so, regardless of the withdrawals of individual PARTNERS.
SECTION IX: Termination
- The PARTNERSHIP may be terminated by the mutual agreement of the PARTNERS whose capital represents a majority stake in the PARTNERSHIP.
- Prior to termination of the PARTNERSHIP, all PARTNERS are to be advised, in writing, that termination is being considered, no fewer than [NUMBER] days before the termination may transpire.
- Upon the decision to terminate the PARTNERSHIP, all PARTNERS shall be notified by the EXECUTIVE, immediately.
- All assets shall be distributed accordingly to all PARTNERS upon the termination of the PARTNERSHIP. Re-payment shall correspond to the percent contributed by each respective PARTNER, except as outlined elsewhere, as applicable.
- Payments shall be made to the bank accounts of record for each PARTNER, upon dissolution of the PARTNERSHIP.
SECTION X: Death of a Partner
- The PARTNER shall only be considered withdrawn from the PARTNERSHIP upon the notification of the death of such partner. In case of death, the PARTNERSHIP should be notified within 30 days from the death of the partner.
- At such a time, all contributions and all other funds owed to the PARTNER shall be transferred to the designee, agent, or trust of the deceased PARTNER’s choosing.
SECTION XI: Payment
- All withdrawals may be made in cash or securities, or some combination thereof, at the discretion of the drawer.
- In cash transfers, the drawer (or his/her designate entity) is entitled to an amount equal to the lesser of 20% of the value of the capital account being withdrawn from, or the value of the capital account being withdrawn, less any costs incurred in the transaction of cash or securities.
- For securities withdrawals, the PARTNERS shall use a third-party BROKER. The brokerage fees resulting from the withdrawal shall be covered by the drawer.
SECTION XII: Forbidden Acts
For the TERM of this PARTNERSHIP AGREEMENT, no PARTNER may:
- Obligate or bind the PARTNERSHIP to any function other than those outlined in the AGREEMENT above.
- Transfer, sell, or loan against his/her stake in the PARTNERSHIP, except with the consent by a majority of all other PARTNERS, by simple vote.
- Use the PARTNERSHIP name, likeness, or logo for any purpose other than those written in this AGREEMENT.
This PARTNERSHIP AGREEMENT shall be binding upon the signatures of the PARTNERS.
[PARTY 1]_________________________________ ______________
[NAME], [TITLE] DATE [PARTY 2]_________________________________ ______________
[NAME], [TITLE] DATE [WITNESS]_________________________________ ______________
DATE
[WITNESS]_________________________________ ______________
DATE