Partnership Agreement
Partnership Agreement Generator
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Sample Partnership Agreement Generated by Legal Tank
Partnership Agreement
Formation
This Partnership Agreement (the "Agreement") is entered into as of [____________] by and among the undersigned partners (individually, a "Partner" and collectively, the "Partners") to form a general partnership (the "Partnership") under the name [____________] pursuant to the Revised Uniform Partnership Act ("RUPA") as adopted in the State of [____________]. The Partnership shall be effective upon the execution of this Agreement by all Partners and the filing of any required statement of partnership authority with the Secretary of State.
The principal place of business of the Partnership shall be [____________], or such other location as the Partners may designate by unanimous written consent. The Partnership may establish additional offices and places of business as the Partners deem necessary or advisable. The Partnership shall file a statement of partnership authority with the Secretary of State as permitted by RUPA to define the scope of each Partner's authority to bind the Partnership.
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Partners and Contributions
The Partners, their respective capital contributions, and their percentage interests in the Partnership are as follows: [Partner A Name], contributing [$__________] in [cash/property/services], holding a [____________]% interest; [Partner B Name], contributing [$__________] in [cash/property/services], holding a [____________]% interest. All initial capital contributions shall be made within [____________] days of the execution of this Agreement and shall be deposited into the Partnership's designated bank account.
No Partner shall be required to make additional capital contributions beyond those set forth herein without such Partner's written consent. If the Partners determine that additional capital is needed, each Partner shall have the opportunity to contribute additional capital in proportion to their respective percentage interests. A Partner who fails to make a required additional contribution within [thirty (30)] days of written demand shall be subject to dilution of their percentage interest in accordance with the formula set forth in Exhibit [____________].
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Profit and Loss Allocation
The net profits and net losses of the Partnership for each fiscal year shall be allocated among the Partners in proportion to their respective percentage interests, unless the Partners unanimously agree to a different allocation in writing. All allocations of income, gain, loss, deduction, and credit shall be made in accordance with Sections 704(a) and 704(b) of the Internal Revenue Code of 1986, as amended (the "IRC"), and the Treasury Regulations promulgated thereunder.
The Partnership shall maintain its books and records on the [cash/accrual] basis of accounting in accordance with generally accepted accounting principles ("GAAP"). The fiscal year of the Partnership shall end on [December 31 / ____________] of each year. The Partnership shall file all required federal, state, and local tax returns, including IRS Form 1065 and Schedule K-1 for each Partner, within the time periods prescribed by applicable law.
Management
The management of the Partnership shall be vested equally in all Partners, each of whom shall have an equal right to participate in the management and conduct of the Partnership's business, unless the Partners designate a managing partner as provided herein. Decisions regarding the ordinary course of business shall require the affirmative vote of Partners holding a majority of the percentage interests. Decisions regarding extraordinary matters, including those set forth in Section 4.2, shall require the unanimous consent of all Partners.
The following actions shall require the prior unanimous written consent of all Partners: (a) the sale, transfer, or encumbrance of all or substantially all of the Partnership's assets; (b) the incurrence of debt in excess of [$__________]; (c) the admission of a new Partner; (d) any merger, consolidation, or reorganization; (e) the filing of a voluntary bankruptcy petition; (f) the amendment of this Agreement; and (g) any transaction between the Partnership and a Partner or an affiliate of a Partner.
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Partner Authority
Each Partner is an agent of the Partnership for the purpose of its business, and the act of every Partner for apparently carrying on in the ordinary course the Partnership's business binds the Partnership, unless the Partner so acting has no authority to act and the person with whom the Partner is dealing knows or has received notification that the Partner lacks authority, as provided by RUPA. No Partner shall, without the prior written consent of all other Partners, undertake any action outside the ordinary course of business.
Without limiting the generality of Section 5.1, no Partner shall, without the prior unanimous written consent of all Partners: (a) execute any guarantee or indemnity on behalf of the Partnership; (b) confess any judgment against the Partnership; (c) submit any Partnership claim or liability to arbitration; (d) assign, transfer, or pledge any Partnership property for other than a Partnership purpose; or (e) enter into any contract or commitment on behalf of the Partnership involving an expenditure or obligation in excess of [$__________].
Distributions
Distributions of Partnership cash and property shall be made at such times and in such amounts as the Partners shall determine by majority vote, provided that the Partnership shall retain sufficient reserves for working capital, anticipated expenses, and contingencies. All distributions shall be made to the Partners in proportion to their respective percentage interests. No distribution shall be made if, after giving effect thereto, the Partnership would be unable to pay its debts as they become due in the ordinary course of business.
Notwithstanding the foregoing, the Partnership shall distribute to each Partner, within [ninety (90)] days after the end of each fiscal year, an amount at least equal to such Partner's estimated federal, state, and local income tax liability arising from their allocable share of Partnership income (the "Tax Distribution"), calculated at the highest marginal individual tax rate applicable in the relevant jurisdictions. Tax Distributions shall be treated as advances against subsequent distributions.
Transfer of Interest
No Partner shall sell, assign, transfer, pledge, encumber, or otherwise dispose of all or any portion of such Partner's interest in the Partnership (a "Transfer") without the prior unanimous written consent of all other Partners, which consent may be withheld in the sole and absolute discretion of each Partner. Any purported Transfer in violation of this provision shall be null and void and of no force or effect, and the Partnership shall not be required to recognize the transferee as a Partner or accord the transferee any rights in the Partnership.
In the event a Partner desires to Transfer all or any portion of such Partner's interest, the transferring Partner shall first offer such interest to the remaining Partners in writing (the "Transfer Notice"), specifying the proposed terms of Transfer and the identity of the proposed transferee. The remaining Partners shall have a right of first refusal to purchase such interest on the same terms specified in the Transfer Notice, exercisable within [sixty (60)] days of receipt of the Transfer Notice, in proportion to their respective percentage interests.
Withdrawal and Dissolution
A Partner may withdraw from the Partnership upon [ninety (90)] days' prior written notice to all other Partners. A withdrawing Partner shall be entitled to receive the fair market value of such Partner's interest in the Partnership as of the date of withdrawal, determined by agreement of the Partners or, if the Partners are unable to agree, by an independent appraiser selected in accordance with Section [____________] of this Agreement. Payment shall be made in [lump sum / installments over ____________ months] with interest at the rate of [____________]% per annum.
The Partnership shall be dissolved upon: (a) the unanimous written consent of all Partners; (b) the occurrence of any event that makes it unlawful for the Partnership to continue its business; (c) the entry of a judicial decree of dissolution under RUPA; (d) the expiration of the Partnership term, if any; or (e) the death, incapacity, bankruptcy, or withdrawal of a Partner, unless within [ninety (90)] days of such event the remaining Partners unanimously elect to continue the Partnership.
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Non-Compete
During the term of this Agreement and for a period of [____________] year(s) following a Partner's withdrawal, removal, or the dissolution of the Partnership (the "Restricted Period"), no Partner shall, directly or indirectly, own, manage, operate, finance, join, control, or participate in the ownership, management, operation, or control of, or be employed by or provide consulting services to, any business that competes with the business of the Partnership within a radius of [____________] miles of any location at which the Partnership conducts business (the "Restricted Territory").
During the Restricted Period, no Partner shall, directly or indirectly: (a) solicit, divert, or take away the business or patronage of any client, customer, or account of the Partnership; (b) solicit, recruit, hire, or engage any employee, contractor, or agent of the Partnership; or (c) interfere with or disrupt any business relationship between the Partnership and any of its clients, customers, suppliers, or vendors. The Partners acknowledge that the restrictions set forth herein are reasonable in scope and duration and necessary to protect the Partnership's legitimate business interests.
Dispute Resolution
Any dispute, claim, or controversy arising out of or relating to this Agreement, including the breach, termination, or validity thereof (a "Dispute"), shall first be submitted to good-faith negotiation between the Partners for a period of thirty (30) days following written notice of the Dispute. If the Dispute is not resolved through negotiation, the Partners shall submit the Dispute to mediation administered by [the American Arbitration Association / JAMS] in accordance with its commercial mediation rules.
If mediation is unsuccessful within sixty (60) days of the commencement of mediation, the Dispute shall be finally resolved by binding arbitration administered by [the American Arbitration Association / JAMS] in [____________], in accordance with its commercial arbitration rules. The arbitration shall be conducted by [one (1) / three (3)] arbitrator(s). The arbitrator(s) shall have the authority to award any remedy available at law or in equity. The decision of the arbitrator(s) shall be final and binding and may be entered as a judgment in any court of competent jurisdiction.
Governing Law
This Agreement shall be governed by and construed in accordance with the laws of the State of [____________], including RUPA as adopted therein, without regard to principles of conflict of laws. To the extent not addressed by this Agreement, the rights and obligations of the Partners and the administration and termination of the Partnership shall be governed by RUPA.
If any provision of this Agreement is held to be invalid, illegal, or unenforceable, the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired thereby, and such provision shall be reformed to the minimum extent necessary to make it valid and enforceable while preserving the parties' original intent. This Agreement constitutes the entire agreement among the Partners with respect to the subject matter hereof and supersedes all prior negotiations, representations, and agreements.
What Is a Partnership Agreement?
A partnership agreement is a contract among two or more people who own a business together that sets out how the partnership is governed: each partner's ownership percentage and capital contribution, how profits and losses are split, who makes which decisions, and what happens when a partner leaves, dies, or the partnership ends. It is the internal rulebook for the relationship, and it controls over the default rules a state would otherwise impose.
In the absence of a written agreement, a partnership is governed by the default provisions of state partnership law, in most states a version of the Revised Uniform Partnership Act (RUPA). Those defaults are often not what partners expect: profits and losses are typically split equally regardless of how much capital each partner contributed, every partner has equal management rights, and any partner can bind the partnership. A written partnership agreement lets the partners override these defaults to match their actual deal.
Partnerships come in different forms. A general partnership is the default when two or more people carry on a business for profit; every general partner shares in management and bears unlimited personal liability for partnership debts. A limited partnership (LP) has at least one general partner who manages and is personally liable, plus limited partners who invest but are shielded from liability beyond their investment so long as they do not participate in control. A limited liability partnership (LLP) gives professional partners protection from one another's malpractice. The agreement should match the form the partners have chosen.
Because each general partner is an agent of the partnership and can create obligations that bind the others, a partnership agreement is one of the highest-value documents a co-owned business can have. It reduces the risk of deadlock and litigation by deciding, in advance and while the partners are aligned, how disputes are resolved, how a partner can exit or be bought out, how the business is valued, and how the partnership winds up. Pairing it with clear capital accounts and a buy-sell mechanism is what keeps a partner's departure from forcing a fire sale of the business.
Why You Need a Partnership Agreement
You are starting a business with one or more co-owners and want to lock in ownership percentages, profit splits, and decision-making rules before money and effort create competing expectations.
Two partners are forming a 50/50 business and need a deadlock-breaking mechanism and a clear exit path so a future disagreement does not paralyze the company.
Partners have contributed unequal capital or effort and want allocations that reflect the real deal rather than the equal split a state would impose by default.
An existing partnership has been operating on a handshake and wants to formalize management authority, buy-sell terms, and dissolution procedures before a partner leaves.
Investors are joining as limited partners and need an agreement that defines their economic rights while preserving their limited-liability status by keeping them out of day-to-day control.
Key Sections in a Partnership Agreement
Capital Contributions and Ownership
States what each partner contributes (cash, property, or services), each partner's ownership percentage, and how and whether additional capital can be required later. Clear capital accounts prevent disputes about who put in what and how that maps to ownership and returns.
Profit and Loss Allocation and Distributions
Defines how profits and losses are allocated among the partners and when and how cash is actually distributed. Allocations need not be equal or match ownership percentages, but they should be stated explicitly to override the state default of equal sharing.
Management and Voting
Specifies how decisions are made: which matters require unanimous consent, which need a majority, and whether any partner has authority to act alone or bind the partnership. This section is where partners override the default rule that every partner has equal management rights.
Partner Duties, Roles, and Compensation
Describes each partner's responsibilities, time commitment, and any guaranteed payments or salary for active partners. It can also address non-compete and confidentiality obligations and what outside activities are permitted.
Transfer, Withdrawal, and Buy-Sell
Sets the rules for a partner selling or transferring their interest, voluntarily withdrawing, or being bought out on death, disability, or expulsion. A buy-sell provision with a valuation method (such as appraisal or a formula) is critical to a smooth, non-litigated exit.
Dissolution and Winding Up
Explains the events that dissolve the partnership, how assets are liquidated, the order in which creditors and partners are paid, and how the business is wound up. Under RUPA, partnership creditors are paid before partners receive any return of capital or profit.
Partnership Agreement Legal Requirements
A partnership agreement is a contract and must satisfy ordinary contract requirements, including mutual assent and consideration, to be enforceable among the partners.
In the absence of a written agreement, the partnership is governed by the default rules of the state's partnership statute, in most states a version of the Revised Uniform Partnership Act (RUPA).
General partners bear unlimited personal liability for partnership obligations and each can act as an agent binding the partnership; limited partners keep limited liability only if they do not participate in control of the business.
Limited partnerships and limited liability partnerships generally require a public filing with the state to form and to obtain their liability protections, in addition to the internal partnership agreement.
On dissolution, RUPA requires partnership assets to be applied first to creditors, including partners who are creditors, before any distribution of capital or profits to the partners.
Common Partnership Agreement Mistakes to Avoid
Operating with no written agreement at all, which leaves the partnership governed by state default rules, including an equal profit split that ignores unequal capital contributions.
Failing to include a buy-sell provision with a valuation method, so a partner's death, divorce, or departure triggers a dispute or forces the business to be sold to fund a buyout.
Splitting ownership 50/50 with no deadlock-breaking mechanism, leaving the partners unable to act when they disagree on a major decision.
Not documenting capital contributions and capital accounts, making it impossible to fairly settle accounts when the partnership dissolves.
Ignoring the unlimited personal liability of general partners and failing to consider an LP, LLP, or conversion to an LLC or corporation where liability protection matters.
Frequently Asked Questions About Partnership Agreements
What is a partnership agreement?
What should a partnership agreement include?
Is a partnership agreement legally binding?
Do I need a partnership agreement for a 50/50 business?
What happens if you don't have a partnership agreement?
Can I write my own partnership agreement?
What is the difference between a general and limited partnership?
How do I dissolve a partnership agreement?
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