A partnership agreement is a document between two or more parties that outlines a partnership’s ownership, roles, and liabilities. It can be set up that all partners have equal rights and liabilities (general partnership) or that are active partners and non-active partners (limited partnership).

Each partner’s ownership mentioned in the agreement must match the entity’s tax return (IRS Form 1065).

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Partnership Types (7)

1. General Partnership – The most common type where the partners share the profits, liability, and running the day-to-day operations of the partnership.
2. Limited Liability Company (LLC) – Known as an “operating agreement” for an LLC that includes the ownership interest and duties of each member. Liability is shared equally.
3. Limited Partnership (LP) – 2 types of partners, a general partner that is in control of the decision-making and liability and limited partners that share in the profit-taking but have no liability or responsibility in the daily operations.
4. Limited Liability Partnership (LLP) –  Generally used for professional services that offer its members limited liability and the tax treatment of a partnership; used by doctors, lawyers, accountants, etc.
5. Limited Liability Limited Partnership (LLLP) – Offers liability protection to both the general partners and the limited partners. The general partners remain in control of the day-to-day decision-making.
6. Joint Venture – An agreement between two individuals (or entities) to combine their services and products to create a partnership.
7. Strategic Partnership – When two businesses form a pact for mutual benefit. This is common when a larger business wants to move into a new market.

What Should be Included (8 clauses)

1. Partnership Details
2. Business Purpose
3. Partners’ Names
4. Capital Contributions
5. Management and Control
6. Roles and Responsibilities
7. Voting Rights
8. Non-Compete
9. Dissolution

1. Partnership Details

The introduction paragraph mentions the agreement date, partnership name, and type. Any additional information to identify the entity should be included.

Partnership Details. This Partnership Agreement (“Agreement”) dated on [DATE], is associated with the following entity:

• Partnership: [NAME]
• Princial Office Address: [ADDRESS]
• Type: (check one)
  • ☐ General Partnership (GP)
  • ☐ Limited Partnership (LP)
  • ☐ Limited Liability Partnership (LLP)
  • ☐ Limited Liabiliy Limited Partnership (LLLP)
• Term. (check one)
  • ☐ In Perpetuity.
  • ☐ Fixed-Term with an end date of [DATE].

Hereinafter known as the “Partnership.”

2. Business Purpose

The business purpose is commonly mentioned in the agreement

Business Purpose. The Partnership shall be involved in the following activies: (check one)

• ☐ Any purpose legal under Federal, State, and local laws.
• ☐ [DESCRIBE]

3. Partners’ Names

The partners should be mentioned in the agreement in addition to their mailing address, ownership interest (as a percentage), and if the partner will have the authority to sign on behalf of the entity.

The Partners. The Partnership is organized with the following members:

• Partner 1: [NAME] with a mailing address of [ADDRESS]
  • Ownership: [#]%
  • Signing Authority: Partner 1 ☐ does not ☐ does have authority to sign agreements on behalf of the Partnership.
• Partner 2: [NAME] with a mailing address of [ADDRESS]
  • Ownership: [#]%
  • Signing Authority: Partner 2 ☐ does not ☐ does have authority to sign agreements on behalf of the Partnership.
• Partner 3: [NAME] with a mailing address of [ADDRESS]
  • Ownership: [#]%
  • Signing Authority: Partner 3 ☐ does not ☐ does have authority to sign agreements on behalf of the Partnership.

4. Capital Contributions

Capital contributions are investments made to a partnership that are used to help fund its initial operations. It is a lot like “seed money” which is a common term used by startups when seeking funds to jumpstart a business’s operations.

Capital Contributions. As part of their ownership in the Partnership, some of the Partners shall be required to make an initial capital contribution as follows:

• Partner 1: [NAME] agrees to make the capital contribution of:
  • Cash: $[#]
  • Other Property: [DESCRIBE]
• Partner 2: [NAME] agrees to make the capital contribution of:
  • Cash: $[#]
  • Other Property: [DESCRIBE]
• Partner 3: [NAME] agrees to make the capital contribution of:
  • Cash: $[#]
  • Other Property: [DESCRIBE]

5. Management

The power in a partnership depends on the type and who has the majority interest. For limited partnerships, a general partner is a person solely responsible for the day-to-day operations of the entity. In exchange, the limited members’ only liability is the financial investment in the entity.

Management. The Partnership’s day-to-day activities will be managed by: [ADD PARTNER’S NAME]

6. Roles and Responsibilities

For some partners, such as the general partner, ownership is connected to their role in managing the partnership. If a partner is required to perform specific duties on behalf of the partnership, it must be written in the agreement to be legally binding.

Partner Roles.

• Officers. The following shall have the official title in the entity:
  • Partner’s Name: [NAME] Title: [TITLE]
  • Partner’s Name: [NAME] Title: [TITLE]
  • Partner’s Name: [NAME] Title: [TITLE]
• Work Requirements. The following shall have work required as part of their ownership:
  • Partner’s Name: [NAME] Work Requirement: [DESCRIBE]
  • Partner’s Name: [NAME] Work Requirement: [DESCRIBE]
  • Partner’s Name: [NAME] Work Requirement: [DESCRIBE]

7. Voting Rights

The voting rights depend on what the partnership agreement mentions. For example, even though the general partner has control over the day-to-day activities of the entity, the limited partners can choose to remove the general partner if they are not performing their duties.

Voting Rights. The partners agree as follows:

Voting Determination. The voting on all Partnership matters will be based on: (check one)

☐ – Ownership. Each vote will be cast with the value based on the partner’s ownership interest.
☐ – Equal Vote for ALL Partners. Each vote will be cast equally amongst all the partners, no matter their ownership interest.

Voting Decisions. Any changes made to the Partnership shall require the following vote: (check one)

☐ – Majority Vote. A majority vote of the partners.
☐ – 2/3 Vote. A two-thirds vote of the partners.
☐ – Unanimous Vote. A unanimous vote of the partners.
☐ – Other. [DESCRIBE]

Meetings. In addition to the annual meeting as required by law, the partnership have the following meetings: (check one)

☐ – Scheduled Meetings. At the following intervals: (check one)

☐ – Weekly.
☐ – Monthly.
☐ – Quarterly.
☐ – Other. [DESCRIBE]

☐ – No Scheduled Meetings. The partners will only meet when there is a specific request.

Special Meetings. A special meeting can be requested and officially called for under the following conditions: (check one)

☐ – Any Partner. Any partner is able to request a meeting of the partnership.
☐ – Specific Partners. Only the following partner(s) can request a meeting: [ADD PARTNERS]
☐ – Other. [DESCRIBE]

8. Non-Compete

Otherwise known as having a ‘conflict of interest’, most partnerships operating a business do not allow the partners to have ownership in a competitor. This is not the case for real estate partnerships.

Non-Compete. It shall be established that any partner: (check one)

☐ – Can Compete. Any partner shall be allowed to participate in another business that may compete or produce a conflict of interest with the partnership.
☐ – Cannot Compete. No partner shall be allowed to compete in a similar business or produce a conflict of interest with the core business purpose.

9. Dissolution

Dissolution is the ceasing of operations and winding down the partnership. This often occurs to financial issues, legal liabilities, a partner’s illness or death, or if the partnership is purchased.

Entering rules for what happens in the event of dissolution is common practice.

Dissolution. The partnership shall be dissolved and its affairs wound up on the occurrence of any of the following events:

a.) Agreement. If, during any meeting, the partners agree to dissolve the entity;
b.) Withdrawal. If, at any time, a partner has involuntarily withdrawn from the partnership due to death, incapacity, bankruptcy, imprisonment, or any other withdrawal action. In the event of such withdrawal, the partnership will be unwound within 30 days.
c.) Sale. In the event the partnership is sold to another person or entity, its assets shall be transferred with the partnership being dissolved at the option of the partners and the buyer.
d.) Court Order. The entry of a court order dissolving the partnership pursuant to applicable law.

Upon the occurrence of a dissolution event, as mentioned herein, the partners shall wind up the partnership’s affairs in a timely manner. This shall include the ceasing of business activities, paying off debts, collecting outstanding receivables, and liquidating any remaning assets of the partnership.

Each partner shall be given notice of the final dissolution and the ceasing of operations on the business and state level. Once all business activity has ceased, the partnership will file a dissolution with the Secretary of State office.