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How to Create a Business Partnership Agreement 

When you’re going into business with a partner, it’s important to have your responsibilities and financial obligations in writing. Disputes may arise while doing business, and even a minor misunderstanding can turn into legal action. 

A partnership agreement allows you to structure your business, including your respective duties, as well as profit distribution and whether or not you and your partners will draw a salary.

The Uniform Partnership Act

The laws concerning business partnerships are different in each state and are usually covered under a Uniform Partnership Act (UPA). Unless you draw up a separate partnership agreement specifically for your business, the state’s laws will govern your operations.

State laws tend to be one-size-fits-all and may not be the best choice for your business. A custom partnership agreement that you and your business partners agree on will likely serve you better in the long run.

What Should I Include in My Partnership Agreement?

Anything related to finances and partner responsibilities should be spelled out in your agreement. Several examples include:

  • Name of the partnership
  • Financial and property contributions
  • Allocation of profits, losses, and draws
  • Each partner’s authority
  • Management duties
  • Adding a new partner

You may also want to have a section on the transfer of business interests.

Creating a Workable Partnership Agreement

To register a partnership agreement, start with a name. It can be the same name as your business, or you can register a separate business name with a Doing Business As (DBA) registration. For example, you can register the partnership as both partners’ last names and then call the business “Danny’s Donut Shop.”

For the agreement, write out what each partner will contribute to the business, including money, property, and services. If one or both of you have intellectual property, spell out who owns the right to that as well. Finally, establish the ownership percentages of the business.

Will you be allocating profits and losses in proportion to the percentage of the business each partner owns? When will profits be distributed? Will any or all partners draw a salary during the year, in addition to receiving a share of the profits? Establish how the money should be distributed before you open your business.

Preventing Disagreements from Hurting the Company

Besides money, authority and scope of responsibility are the other primary reasons business partners disagree. To prevent disagreements on the front end, determine who will be responsible for entering into business contracts and agreements, as well as who will play which role in operations, marketing, and managing finances. 

You may even wish to have job descriptions written into the agreement so you and your partner can provide consistent direction to your employees. 

Include management duties into your agreement too, such as who will keep the books, who will oversee operations, and how you plan to market your business.

Will you admit new partners? What will you do in the event one partner dies, wants to retire, or leaves the business? Your business partnership agreement should cover the procedure for adding a new partner and how you plan to buy out a partner who wishes to leave. 

You may also want to have a business succession plan to protect your interests.

Dispute resolution is another factor in your agreement. Will it include an arbitration clause? If you and your partner are deadlocked over business strategies, having a dispute resolution in place could prevent you from winding up in court.

These topics are part of the conversation partners should have before starting a business together. 

Drawing Up the Agreement

Once you’ve come to an agreement on finances, responsibilities, and business operations, it’s important to have a business lawyer draw up your partnership agreement.

At Woods Lonergan, our New York City business lawyers are familiar with the rules and regulations in New York state and can ensure your agreement stands up in court. Get in touch with our office today.