Partnership Agreement Template

Business partnerships—the lifeblood of the modern corporate world! But where would we be if we were relying on verbal agreements and inadequate templates that leave gaps that can be exploited or lead to seeking expensive legal advice down the line?

When you are entering a business venture with partners, it is critical to have a clear and comprehensive Partnership Agreement in place as the foundation for this partnership. It is a structured framework that contains all the terms, rights, responsibilities, and expectations of each partner.

In this article, we are going to talk about the importance of a Partnership Agreement before starting a business venture. We will also cover the potential complications of operating a business without one and introduce the robust, fully customizable Partnership Agreement Template offered by FreshDox.com as a one-stop solution for forming a solid business partnership. Let’s begin by breaking down what a Partnership Agreement stands for in plain words.

What is a Partnership Agreement?

A partnership agreement is a legal document that is designed to outline the governance of a business partnership. More specifically, it includes all the terms about the roles, responsibilities, and obligations of all partners/parties involved in the business venture.

As this document is all about the governance of a business partnership, it needs to cover all bases for legal, obligatory, and compliance soundness.

In broad strokes terms, the Partnership Agreement specifies the investment of each partner, their share in profits and losses, the management responsibilities, the day-to-day duties, the decision-making processes, and the procedures for resolving disputes, among other things.

It is a foundation for the partnership that makes sure that all partners are aligned on the business’s operations and goals, and in case some problem does happen, that they know how dispute resolution is going to be carried out, or how the assets are going to be divided among the remaining partners if someone leaves.

Basically, it needs to cover every possibility. From the biggest stipulations such as who has how much ownership to the smallest detail, like which decisions will require the consent of all partners, and from serious considerations such as what will happen in the case of the death of a partner to more straightforward clauses about the effective date, end date, and the governing law—it needs to be comprehensive and airtight to be relevant, enforceable, and strong.

Importance of a Partnership Agreement

You simply cannot start a business without a sound partnership agreement. Whether it is a C Corp, Limited Liability Company, Limited Liability Partnership, or some other type of organization, you need a starting point that is rooted in legalities and technicalities. The partnership agreement is that starting point.

The business partnership agreement outlines the business relationship between the general partners of the business (and might also be called a general partnership agreement). Everything that has been agreed upon needs to have a legal basis—and the job of this agreement is to offer precisely that. For example, there needs to be a legal basis behind why partner 1 is getting a particular share of profits, or how the company assets including real estate will be used.

Usually, companies arrange special meetings to arrange all these terms and conditions. Then, following the state’s laws, they draft their partnership agreement to streamline the operations and duties of all partners. This preserves partnership interest across all types of partnerships and organizational structures.

So, why is it important? To summarize, it is important because:

• It formalizes the mutual understanding and expectations among partners.
• It reduces the risk of disputes and internal conflicts among the various partners.
• It clearly defines each partner’s contribution and shares to ensure fairness, transparency, and legal backing for their claims.
• It addresses potential future scenarios, such as the exit of a partner or the dissolution of the partnership—offering a pre-agreed path for these situations to help save partners from contentious and expensive legal battles.

Ultimately, the core aim of the partnership agreement is to preserve the business as well as the personal relationships.

The Risks of Not Having an Adequate Partnership Agreement

If you do not have a proper partnership agreement, or if you are relying on a less-than-ideal template to create your partnership agreement, then you are opening the organization up for various problems such as legal disputes, ambiguities, and internal conflict.

Nobody wants that.

That is why operating without a well-drafted Partnership Agreement that fits the bill for your unique organizational structure, member priorities, and objectives is risky. The same applies to those who rely on a generic, free partnership agreement template.

What happens in these cases is that there is some ambiguity or confusion, or some other kind of gap. Ultimately, it leads to disputes over financial contributions, profit sharing, and decision-making powers. This can potentially cripple the business’s growth.

An inadequate agreement might also fail to provide essential protections for partners, leaving them personally liable for business debts or actions taken by other partners.

What’s more, the lack of a proper partnership agreement is often the culprit behind complications in legal proceedings, should the partnership face lawsuits or dissolution. This brings about unfavorable outcomes for all the partners involved, hurts the business entity itself, stunts any growth, and causes massive waste of time and money.

What is Included in a Proper Partnership Agreement?

Everything that is relevant!

The document should go into detail for every aspect—the profit-sharing arrangement, arbitration clause, duties related to the business activities, registered place of business, how to onboard new partners, capital contributions of initial business partners, what decisions will need unanimous consent, how will the ownership interest be divided among partners, and so on.

It is a detailed operating agreement. And as such, it should include all relevant details. But fret not—we have a nice structure put together for you that you can refer to. Below is a step-by-step list of what sections and clauses your Partnership Agreement should ideally include. Please note that while these are the recommendations, you might need additional clauses and sections. In some cases, you might even do away with a clause or two from this list. It depends entirely on your use case.

With that out of the way, let’s take a look at the ideal Partnership Agreement document structure you should follow, regardless of the type of business venture you are planning:

• Begin with detailed partner information. Include the partner names and their details. Clarify their designations and ensure proper contact information is present for all members.
• Next, outline the contribution details—this includes the capital, assets, or skills that each partner brings to the table. Additional information might also be included, such as each partner’s role in handling the daily responsibilities of the business or the division of responsibilities regarding asset management.
• The partnership agreement also covers the profit and loss distribution clauses. These are the conditions for how the profits and losses are to be divided among the partners. More often than not, in a partnership arrangement, different partners contribute differently and are to be compensated accordingly. All of these terms about the profits and losses must be specified in detail within the partnership agreement.
• Defining the decision-making processes is also critical in the partnership agreement. These are essentially the voting rights and the procedures for making business decisions. Specify all details, such as which decisions must require a majority vote, which ones will require a unanimous decision, and who has how much voting power for what aspects of the business.
• It is also important to clarify the dispute resolution procedures of the partnership. Here, you should delineate the mechanisms for resolving disagreements between partners, which are inevitable at some point. Specify the internal processes, put provisions for meetings, and also mention the jurisdiction where and how disputes will be resolved if a law firm has to be brought into the equation.
• Next, discuss the entrance and exit strategies for the members, outlining the guidelines for adding new partners to the organization and handling a partner’s departure. This is the right place to discuss the processes for dealing with the abrupt removal of a partner, in case of disciplinary action, accidental death, or some other reason.
• Lastly, end the partnership agreement with the dissolution terms. These are the conditions under which the partnership may be dissolved and cease to exist. Take special care in determining how the assets will be distributed in case this comes to pass.

The aim of including all these in as much detail as possible is simple—you have to make sure that the partnership is built on a solid legal foundation with clear expectations for all parties.

FreshDox.com’s Partnership Agreement Template

Forming a business partnership requires careful consideration and planning. FreshDox.com’s Partnership Agreement Template is designed to facilitate this process and make your life easier! Our template offers a customizable framework covering all essential aspects of a partnership agreement. It is crafted by legal and business professionals to help ensure that your partnership is established on clear, fair, and legally sound terms.

When you subscribe to FreshDox.com, you gain access to a vast library of legal and business document templates that you can customize as per your needs. This includes our comprehensive Partnership Agreement Template. We also have a 14-day trial period for users to explore the benefits of both our plans—Basic and Premium.

Basic Members can download up to three legal documents per month, while Premium Members enjoy unlimited access. Our plans are designed to cater to a wide variety of needs for businesses of all sizes and stages.

Using FreshDox.com’s Partnership Agreement Template empowers you (and your partners) to lay a strong foundation for the business venture. It ensures that there are no gaps. So, don’t wait any longer! Avoid the pitfalls of misunderstandings and legal ambiguities—sign up for a FreshDox.com account today to secure your partnership with our expertly crafted Partnership Agreement Template.