Partnership Agreement

Partnership Agreement

When to Use This Skill

Use this skill when you need to:

• Draft a partnership agreement for a new business venture
• Define roles, responsibilities, and profit-sharing among partners
• Establish decision-making processes and dispute resolution
• Create exit provisions and buyout terms

DO NOT use this skill for affiliate agreements, client contracts, or employment agreements. This is for business partner relationships. Always have an attorney review the final agreement.

Core Principle

THE BEST TIME TO NEGOTIATE A PARTNERSHIP AGREEMENT IS WHEN EVERYONE IS EXCITED AND GETTING ALONG — BECAUSE THE AGREEMENT ONLY MATTERS WHEN THEY ARE NOT.

Phase 1: Partnership Details

Required Inputs

GATE: Do not proceed without partner names, ownership split, and capital contributions.

Phase 2: Agreement Structure

## Partnership Agreement

**This Partnership Agreement** is entered into as of [Date] by:

Partner 1: [Name] ("Partner A")
Partner 2: [Name] ("Partner B")

### 1. Formation and Purpose

The Partners form [Business Name], a [general partnership / LLC /
other entity] organized under the laws of [State], for the purpose
of [business description].

### 2. Capital Contributions

| Partner | Contribution | Value | Ownership % |
|---------|-------------|-------|------------|
| Partner A | [Cash / IP / equipment / services] | $[X] | [X]% |
| Partner B | [Cash / IP / equipment / services] | $[X] | [X]% |

Additional capital contributions require unanimous consent. No partner
is required to make additional contributions beyond the initial amount.

### 3. Profit and Loss Distribution

Profits and losses shall be distributed as follows:
- Partner A: [X]%
- Partner B: [X]%

Distributions shall be made [monthly / quarterly / annually] after
maintaining a minimum operating reserve of $[X].

Each partner shall receive guaranteed payments of $[X]/month for
management services before profit distribution (if applicable).

### 4. Roles and Responsibilities

| Partner | Role | Key Responsibilities |
|---------|------|---------------------|
| Partner A | [Title] | [List primary responsibilities] |
| Partner B | [Title] | [List primary responsibilities] |

### 5. Decision-Making

**Day-to-day operations:** [Partner A / Either partner] may make
decisions for expenses under $[X] without the other partner's consent.

**Major decisions requiring unanimous consent:**
- Expenditures over $[X]
- Hiring or firing employees
- Entering contracts over $[X]
- Taking on debt or loans
- Adding new partners
- Changing the business direction or model
- Selling business assets

**Deadlock resolution:** If partners cannot agree, they shall:
1. Discuss and attempt to resolve within [7] days
2. Engage a mutually agreed mediator within [30] days
3. If mediation fails, [arbitration / buyout trigger / other mechanism]

### 6. Management and Authority

Each partner has the authority to:
- Bind the partnership in the ordinary course of business
- Access business bank accounts
- Execute contracts under $[X]

No partner may, without the other's consent:
- Admit new partners
- Assign partnership interests
- Pledge partnership assets as collateral
- Enter into agreements exceeding $[X]

### 7. Compensation and Draws

| Component | Partner A | Partner B |
|-----------|----------|----------|
| Management salary | $[X]/month | $[X]/month |
| Profit distributions | [X]% | [X]% |
| Expense reimbursement | Actual, pre-approved | Actual, pre-approved |

### 8. Exit Provisions

**Voluntary withdrawal:** A partner may withdraw with [90] days
written notice. The remaining partner has the right to purchase the
departing partner's interest.

**Buyout valuation:** The departing partner's interest shall be valued
using [method: book value / fair market value / formula / independent
appraisal].

**Payment terms for buyout:** [Lump sum within 90 days / installments
over 12-24 months with interest at X%].

**Right of first refusal:** Before selling to a third party, the
selling partner must offer their interest to the remaining partner(s)
at the same price and terms.

**Death or disability:** The deceased/disabled partner's interest
shall be [purchased by remaining partner(s) / transferred to estate].
Consider funding with key-person life/disability insurance.

### 9. Non-Compete

During the partnership and for [12-24] months after exit, no partner
shall engage in a competing business within [geographic area or
industry scope].

### 10. Confidentiality

All business information, customer lists, strategies, and financials
are confidential. This obligation survives termination.

### 11. Dispute Resolution

Disputes shall be resolved through:
1. Good faith negotiation (14 days)
2. Mediation (30 days)
3. Binding arbitration in [jurisdiction]

### 12. Dissolution

The partnership shall dissolve upon:
- Unanimous written consent
- A partner's death (unless buyout exercised)
- Bankruptcy of the partnership
- Court order

Upon dissolution, assets are liquidated and distributed in order:
1. Third-party debts
2. Partner loans to the partnership
3. Capital account balances
4. Remaining assets per ownership percentages

Phase 3: Customize

• Adjust decision-making thresholds to match business scale
• Define specific non-compete terms appropriate to the industry
• Include intellectual property assignment if either partner brings IP
• Add vesting schedule for sweat equity partners if applicable

Phase 4: Finalize

## Partnership Agreement Checklist

- [ ] Ownership percentages are agreed and documented
- [ ] Capital contributions are valued and recorded
- [ ] Roles and responsibilities are clearly defined
- [ ] Profit distribution method is explicit
- [ ] Major decision thresholds are set
- [ ] Exit/buyout provisions are defined with valuation method
- [ ] Non-compete terms are reasonable and enforceable
- [ ] Dispute resolution process is clear
- [ ] Dissolution procedures are documented
- [ ] Agreement reviewed by attorney for each partner (separate attorneys recommended)
- [ ] Both partners have signed

Example: Two-Person Digital Agency

Partners: Anna (60% - strategy, sales) and Ben (40% - design, delivery). Capital: Anna contributes $30K cash. Ben contributes $10K cash + existing client relationships. Salaries: Anna $5K/month, Ben $4K/month before profit split. Exit: 90-day notice, buyout at 3x trailing 12-month net profit, payable over 18 months. Decision threshold: Unanimous for anything over $5K.

Anti-Patterns

• 50/50 split with no tiebreaker — equal partnerships with no deadlock resolution mechanism lead to paralysis. Define a tiebreaker.
• No exit provisions — the most important part of a partnership agreement is how to end it. Never skip this section.
• Handshake agreements — "we trust each other" is not a legal strategy. Write it down.
• Same lawyer for both partners — each partner should have independent legal review to protect their interests.
• No valuation method for buyouts — agreeing to "fair value" without defining how it is calculated leads to fights. Pick a method now.

Recovery

• Already in partnership without an agreement: Create one immediately. It is harder to negotiate after the business is running, but essential.
• Partners disagree on terms during drafting: This is the time to discover incompatibilities. Better to walk away now than after launching.
• Unequal contributions: Structure with vesting, guaranteed payments, or adjusted profit splits to reflect different contribution types.
• Partner wants to leave: Follow the exit provisions. If no agreement exists, consult an attorney immediately to negotiate a separation.