A partnership agreement form is basically a contract agreement between two business partners. This documents helps to define how the partners involved with the agreement will manage the business as partners, what the partners have invested with the business, and how each partner will be paid. It also gives a definition of how changes will be made. Changes may involve adding partners and partners leaving the agreement.
If you are building a business partnership, you should definitely come up with a partnership agreement. In this article, we are going to help you come up with your very own partnership agreement. We also have a couple of sample business partnership agreement templates to download that we would like to share with you. If you are ready to start making your very own partnership agreement, make sure that you keep reading this article!
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What to Include in a Partnership Agreement
Simple business partnership agreements come in different lengths and formats. However, there are a couple of basic elements that should always be included in a partnership agreement. Such elements are the following:
1. The Business Name
The name of the business name should always be included in a partnership agreement or whatever business agreement there is. Such names are the main name of the business company, any other name that the business may be known for, and the name of the parent company if applicable. Fictitious business names should also be included.
The business purpose should also be included in the business partnership agreement. The statement of purpose is generally written in a fairly broad manner to ensure that there will be room for improvement or adapting should there be a need for one. This way, there will be no need for you to keep on revising your agreement every time that there is a new development or new experiments are being conducted within the business.
2. Areas of Responsibilities
You want to make sure that you are able to decide who will be doing what in the business. There are a wide variety of responsibilities that you can assign partners to. Such responsibilities may include
- business strategy formulation,
- human resource responsibilities such as hiring and general HR duties,
- marketing and advertising,
- partnerships with other companies and clients,
- managing of finances and other accounting duties, and
- daily management duties.
One partner may be assigned to one duty or they might also be assigned to multiple responsibilities. Partners can either be full-time partners or part-time partners, which can be a factor on how responsibilities can be assigned.
3. Time Commitment of Each Partner
This can include listing down
- set hours,
- vacation leave,
- sick leave, and
- amount of hours for full time partners and part-time partners.
You want to list down what and how much each partner is bringing down to the business. This includes cash investments, physical property, and other types of property. You should also outline how each of these properties will be used in the business. You may also see teacher agreement contract samples.
5. Splitting Ownership
Once you have decided on the workload, the responsibilities, and the contributions each partner has given, you want to make sure that the ownership of the business is fairly split among each partner involved. To fairly split the ownership between the partners, there are a couple of things that you need to consider. You may also like sample payment agreements.
The amount of contribution that has been given by the partners. If a partner has given a bigger amount of cash or property, the likelihood that they will be given a bigger amount of ownership is high.
- Who thought of or developed the business idea.
- The partner who secured the patent.
- Is the partner going to work full time or part-time?
- Is there a partner that has raised a good amount of capital funding?
6. Distribution of Profits and Losses
Partners are paid in distribution of the profits and losses instead of salaries because they are considered to be self-employed individuals. This means that if there are no profits, there is basically nothing to distribute.
You want to ask the following questions in order for you to come up with provisions regarding distribution of profits and losses:
- When should profits be taken out and distributed to partners?
- Calculations of profits and losses.
- Are profits going to be reinvested or otherwise?
- Will guaranteed payments be offered? To whom? When? How much?
You may also check out sample contract termination agreements.
7. Partner Disputes
Discussing the disputes and the resolutions should also be included in the simple agreement. Disputes are inevitable, so there should be a discussion in the agreement about the processes that should be done in order to come to a resolution that would be favorable to the disputing parties. Provisions regarding coming up with a resolution may include the following:
- Who has the final say?
- Will a partner have a say on a specific part of the business?
- Should the ownership be chosen by means of voting? Who will vote?
- Will outside mentors be considered to come up with resolutions?
Other options for resolving disputes can include the following:
8. Commitment to the Partnership
You want to make sure that in the agreement, you are able to define the power that each partner has to committing in a partnership. You may also see vehicle purchase agreement letters.
You want to answer the following questions:
- Contracts. Are all partners authorized to sign any contracts presented on behalf of the business? Or will there be a need for a consultation or a meeting between partners before any partner signs a contract?
- Debt. Will the business acquire credit cards? Loans? Credit lines? Will everyone be liable for the debt of one? Or will the partner responsible for the debt be solely responsible for it? You may also like professional services agreement templates.
- Spending. Is there a need to consult partners about making purchases or not?
9. Changes In Partnership
- Partner Death/Disability. When a partner dies or is disabled, a buy-sell agreement is typically issued. This agreement will allow the partners to buy out the partner who is incapable due to disability or is now deceased. Buy-sell agreements also cover cases of divorce that ensures that the ex-spouse will not become a business partner. You may also check out sample operating agreement templates.
- Partner exit. There are three types of exit, and for each type of exit, a corresponding solution should be stated.
- Voluntary exit. This typically happens when a partner wants to leave the partnership and pursue other interests. This is usually covered by a buy-sell agreement.
- Involuntary exit. Consider the circumstances when a partner will be forced to exit the partnership.
- Death. You want to make sure that you are able to define what will happen if a partner becomes disabled or dies while still involved in the partnership. You might be interested in sample vendor contract agreements.
10. Adding New Partners
When your business grows, the possibility of adding a partner is highly likely. You could either add a new partner, acquire another business partnership, or promote from within the company. The following should also be considered:
- Who can add partners?
- What is the process involved with adding a new partner?
- How are responsibility changes handled?
- What is the voting process?
You may also see artist agreement contract samples.
11. Selling the Business
Selling your business may be something that you do not consider the first time you come up with your business. However, there are times that may call for the need to do so. So you want to make sure that you also write down provisions about selling your business in your agreement.
You can check out Partnership Agreement Samples and Templates for more information about writing partnership agreements.
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Why Is a Partnership Agreement Important?
Partnership agreements are considered to be important because:
1. Partnership agreements can help to resolve disputes. If your business partnership agreement has been crafted carefully, how to come up with sensible resolutions will definitely be outlined in the agreement. You may also see sample memorandum of agreement templates.
2. It can help avoid potential disputes. Honest conversations can help to avoid possible disputes as you can freely discuss everything with your partners. You may also like sample business referral agreements.
3. Clarifications regarding the business structure can be easily defined.
4. It can help business transition. Partners exiting the business is not uncommon. Since exits are outlined in the agreement, transitioning smoothly will be easier than ever. You may also check out settlement agreement samples.
You can check out General Partnership Agreement Samples for more information.
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