What Partnership Agreements Should Include?

Table of Contents

1. Partnership and Partnership Agreement Definition
2. Partnership Agreement v Operating Agreement
3. Partnership Agreements Should Include
   1. General Sections That Partnership Agreements Should Include
   2. Possible Other Sections
4. Partnership Agreement Attorney

Partnership and Partnership Agreement Definition

A partnership is a business formed with two or more owners. Each owner contributes some kind of asset (money, equipment, location, future work, etc.) that will be given a share percentage value that adds up to 100% between all owners. The owners will then share in profits at their share percentage.

There are three types of partnership- General, Limited, and Limited Liability.

While it is not required to have a partnership agreement most of the time, the most important document a partnership could (and should) draw up at formation is the partnership agreement. This agreement is a legal document, which must comply with state law but may overwrite state default laws if not required laws. It is also important to register for an EIN whether you hire employees or not.

Each state has different laws, so it is best to check with your state’s Secretary of State to see what are required laws and what is default but overridable rules.

The purpose of a partnership agreement is to spell out as many contingencies that the partnership could face prior to them arising. It also gives the courts a legal document to help resolve court cases should they arise.

The partnership agreement should answer all the high school English questions- who, what, when, where, how, and how much, plus how to change those answers.

Partnership Agreements v Operating Agreements

Partnership agreements are between owners of a partnership while operating agreements are between members of a limited liability company. Partnership agreements and operating agreements are very similar in their purpose, but operating agreements are usually much more detailed.

Partnership Agreements Should Include

General Sections That Partnership Agreements Should Include

• Name of Partnership- make sure the name you want to use is available by looking at your Secretary of State’s website. Also, you must include at the end of the name LP for limited partnerships and LLP for limited liability partnerships.
• Location- what states will the partnership be registered (domicile=home state, foreign=other states registered in), physical and mailing addresses of principal office for purpose of contact and service of legal process, secondary locations of business
• Term of Partnership- most partnerships are listed as perpetual (undefined) but a few are set up to have a specific term length.
• Partners’ information- make sure to name each partner, their classification if a limited or limited liability partnership, percentage of ownership, and contributions to gain shares, allocation of profits, responsibilities, and authorities.
• Business purpose- define what the partnership will do, including what products or services it will offer.
• Ownership of assets- what assets are owned by the partnership and what is owned by the partners and at the use of partnership.
• Governing law- which state’s law will govern any judicial disputes that arise under the partnership agreement. (almost always domicile state)
• Standard of Conduct and Conflict of Interest Policies for partners
• “At-Will” status- “at-will” means that partners can leave partnership at their will and are not under obligation to remain in partnership until a defined time period or accomplishment. Also, be sure to check with your state’s laws as some states require the partnership to be dissolved and reopened under new partners if the original partner(s) desire to leave.
• Future decisions- what type of decision must be voted on and what percentage of votes are required to pass (majority, supermajority, unanimous), and what are under the management of day-to-day.
• Transferable interest- if, when, to who, and how partners can transfer some or all of their interest in the partnership, also how and if new partners can be added, plus how the death of a partner will be handled
• Dissolution- how and when there will be a total dissolution of the partnership

Possible Other Sections

Some types of industries the partnership could be involved in can require more sections to be considered if needed to be included:

• Non-compete clause- when a partner leaves the partnership, they are restricted from competing with the departing partnership for a specified time or in a specified area.
• Non-disclosure- this restricts the partners, current or former, from disclosing proprietary information about the business’s products, processes, or formulas
• Non-solicitation- this restricts the former partner from soliciting employees, customers, or other people or businesses (ex-suppliers) under contracts with the original partnership.
• Mediation/Arbitration- this requires all disputes to be either mediated prior to legal actions being taken or mandatory arbitration instead of legal actions to resolve the dispute between partners or partner(s) and the partnership.
• How amendments can be made to the partnership agreement.

Every partnership should have a written partnership agreement and those partnership agreements should include agreed to answers to as many as possible situations that could affect the partners or the partnership are covered ahead of time.. Also, the agreement should be reviewed at least once a year for spotting changes that need to be voted on.

Partnership Agreement Attorney

Please hire an experienced attorney to help you with this if you are unable to do this yourselves. DO NOT USE free templates online, except to get you thinking, as they likely do not take your state’s laws and requirements into consideration and do not take your industry’s needs or specific parties’ needs into consideration.

⚠️Disclaimer⚠️: This article is intended to be an introduction to partnership agreements and not as a complete, end-all template. As I do not know your exact situation, I am not intending to give tax or legal advice. While I am an attorney, I am not your attorney and no attorney/client relation has been created by this article. I highly advise you to speak with legal or tax professionals who can help you with your specifics for your partnership agreement if this is the business structure you choose.