Sample Partnership Agreement

This is a sample for a partnership agreement only. Any partnership agreement should only be made with the consultation and professional with a legal attorney. Such professional advice should be sought before agreeing to or signing on a partnership agreement as well.

Sample Partnership Agreement

Date:____________

Commences:___________

Expires:____________

Location:____________

This partnership agreement is made on this___________ day of, 20__, between the individuals listed below:

___________________________

___________________________

___________________________

—————————————————————————————————————

The partners listed above hereby agree that they shall be considered partners in business upon the commencement date of this partnership agreement for the following purpose:________________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

 

The terms and conditions of this partnership are as follows:

  1. The name of the partnership shall  be:________________________________________________________________
  2. The principal place of business of the partnership shall be:_________________________________________________________________
  3. The capital contribution of each partner to the partnership shall consist of the following property, services or cash to which each partner agrees to contribute:

    Name of Partner  Capital Contribution  Agreed Upon Cash Value    Percent Share
    ______________     ________________   ____________________      ___________
    ______________     ________________   ____________________      ___________
    ______________     ________________   ____________________      ___________

    Furthermore, the profits and losses of the partnership shall be divided by the partners according to a mutually agreeable should you and at the end of each calendar year according to the proportions listed above.

  4. Each partner shall have equal rights to manage and control the partnership and its business. Should there be differences between the partners concerning ordinary business matters, a decision shall be made by unanimous vote. It is understood that the partners may elect one of the partners to conduct day-to-day business of the partnership; however, no partner shall be able to bind the partnership by act or contract to any liability exceeding–dollars without the prior consent of each partner.
  5. In the event that a partner withdraws from the partnership for any reason, including death, the remaining partners may continue to operate the partnership using the same name. The withdrawing partner shall be obligated to sell his or her interest in the partnership. No partner shall transfer interest in the partnership to any other party without the written consent of each partner.
  6. Should the partnership be terminated by unanimous vote, the assets and cash of the partnership shall be used to be all creditors with remaining amounts to be distributed to the partners according to their proportionate share.
  7. Any disputes arising between the partners as a result of this agreement shall be settled by voluntary mediation. Should mediation failed to resolve the dispute, it shall be settled by binding arbitration.

In witness whereof, this partnership agreement has been signed by the partners on the date and year listed above.

Partner _____________________________________________

Partner _____________________________________________

Partner _____________________________________________

 

This is only a sample partnership agreement. Always consult an attorney with professional legal advice before you draw or sign any partnership agreement.

7 Important Points For a Partnership Agreement

tips for a better partnership agreement

If you decide to form your business as a partnership, you will need to draft a partnership agreement that gives out the details of how the business responsibility, decisions and day-to-day running is going to be handled and distributed amongst the partners.

A very common partnership set up is when 2 to 3 people set up the business and share responsibilities and liabilities equally. However, the business share as well as executive authority is something that can be divided differently between different partners.

However, there are several other points that should be factors in an extensive partnership agreement such as how to handle a buyout when one partner decides to leave the company or the partnership is terminated. Having as many details as possible listed out in a partnership agreement is a good idea because it avoids future disputes and legal hassles.

The partnership agreement should effectively address the purpose of the business, the shared authority and responsibility of each partner.

A partnership agreement should always be drafted with the consultation and advice of a competent business attorney.

sign a better partnership agreement

Here are some of the main issues that you will want to address in your partnership agreement.

How are the ownership interests shared?

It is not necessary that each partner has an equal share in the business and its ownership. Different business takes as the as level of authority can be decided according to the partnership agreement. For example, senior partners can have more share in the business as opposed to newer partners.

How will the decisions be made?

It is also a good idea to establish the Authority of each partner along with the voting rights in case of a major disagreement. If 2 partners in a business have 50-50 voting rights, there is a healthy possibility of a deadlock over some major business decision. In order to avoid such a deadlock some businesses provide in advance for a 3rd partner who could be a trusted employee or associate with only 1% of the partnership share. Such a person can break the deadlock with his vote.

How to handle the termination of partnership or withdrawal of any one partner?

You can decide beforehand how the business share of the partner who is leaving the firm, or whose partnership is being terminated etc. will get his share in the business liquefied. One option is to use a 3rd party such as a banker or an accountant to determine the fair price of the partnership trust.

If a partner withdraws from the partnership, when and how will the money be paid?

It is also a good idea to decide how the money is going to be paid to partner withdraws from a partnership. Having to pay the money all at once can put unnecessary burden on the business. Usually an agreement to pay the partnership interest of the partner over 3, 5 or even 10 years with interest is established in the partnership agreement. Failing to do so could mean that your business suffers a cash flow crisis if the entire amount has to be paid in a lump sum. This is an extremely critical point has no business can really operate without sufficient cash flow.

Setting Up A Partnership Business

If your business is going to be jointly owned and operated by more than one individual, setting up a partnership may be the right legal structure for you to follow. There are mainly 2 kinds of partnership, limited partnership and general partnership.

In a general partnership, all the partners usually hold equal claim to the company and participate jointly in running the business and making business decisions. Of course the role and responsibility of each partner can be different and decided according to the partnership agreement.

In a general partnership all partners are involved in running of the business and share the liability for business debts, activities and claims.

A limited partnership has both general and limited partners. The Gen. partners own and operate the business and assume the liability for the partnership whereas the Limited partners only serve as investors who have no real control over the day-to-day running and business making decisions.

Unless you’re looking for many investors in your business, a limited partnership is generally not the best choice for new business since it requires additional paperwork along with several other administrative complexities. If you have 2 or more partners who are going to be actively involved in running the business and sharing its profits, setting up a general partnership will be a much more easy process to follow.

As with a sole proprietorship, a partnership set up also enjoys its tax benefits. A partnership does not pay tax on the income but passes through any profits or losses to the individual partners. At the time of filing the tax returns, the partnership must file a tax return in the form of form 1065 that reports it income and loss to the Internal Revenue Service. In addition each partner reports his or her share of income and loss on schedule K-1 of form 1065.

One of the obvious disadvantages of a partnership set up is the personal liability. This is a factor that the partnership has in common with the sole proprietorship. General partners are personally liable for the partnerships debts and legal obligations. Each general partner can act on behalf of the partnership, take out loans and make decisions that would affect and be binding on all partners. This of course depends upon the clauses included in the partnership agreement. Sometimes the executive right to enact on certain aspects of the business are withheld from certain partners.

Another feature to note about the partnership is that it is now much more expensive process to establish and more expensive because it requires more extensive legal work and accounting services. Not only is the setting up of a partnership more expensive but also the maintenance and record keeping of the business as well.