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What Is A Business Partnership Agreement?
A business partnership agreement, also known as a partnership contract or articles of partnership, is a legally binding document that determines the roles and responsibilities between two individuals or entities acting as business partners. For partnership agreements to be enforceable, they should contain specific elements and provisions that comply with local, state, and federal contract law.
What Is A Business Partnership?
A business partnership is a formal agreement between two parties operating and managing a company and share in its profits or losses. While there are risks associated with business partnerships, they can flourish successfully and generate significant revenue for both partners.
Business partnerships work well for several types of professions, including:
- Lawyers
- Accountants
- Contractors
- Marketing professionals
- Financial managers
- And more
Like a sole-proprietorship, most business partnerships do not shield owners from legal and financial exposure. Partners are liable personally for all debts and paying income tax on profits and losses. The exceptions to this are Limited Liability Partnership (LLP) and a Professional limited liability partnership (PLLP), which we will address later in this article. The most important advantages of a business partnership are that they are less complicated to form and carry lower taxes than other structures.
Roles And Responsibilities
Legal responsibilities apply to all members of every partnership. In general, they must keep financial records accurate, pay taxes, and provide overall managerial direction, unless they are silent partners. Silent partners share in the profit and loss of a business partnership without exercising operational control.
Depending upon the type of business partnership and industry, partners must share in the following roles and responsibilities:
- Managing employees
- Implementing marketing strategies
- Developing client relationships
- Tracking financial objectives
- Executing other strategic management activities
As you can see, a business partner’s duties are primarily related to everyday managerial activities focused on growth. Several factors determine the scope and depth of each partner’s role, including the type of partnership chosen from a legal and structural standpoint.
Types Of Partnerships
There are a few types of partnerships from a legal and taxation standpoint. The structure you and your partners use will vary by industry, investment strategy, willingness to take on personal liability, relationship strength, individual backgrounds, and location. Consider your options prudently before making a decision.
The four main types of partnerships include:
- General partnership (GP) : A general partnership is where two or more owners carry out the business’ purpose. They share equal responsibility and rights while retaining liability for all obligations and debts. General partnerships allow owners to use a passthrough tax advantage that can result in lower tax rates.
- Limited partnership (LP) : A limited partnership restricts the amount of personal liability involved for investment purposes. While there must be at least one general partner, limited partnerships allow the business to receive operating capital. The limited partner will also receive profits or pay for losses.
- Limited Liability Partnership (LLP) : An LLP retains a general partnership’s tax privileges while offering protection from personal liability to partner members. These safeguards include protection from loss or civil liability resulting from wrongdoings committed by other partners.
- Professional limited liability partnership (PLLP) : A PLLP is an LLP comprised of licensed professionals, such as accountants, lawyers, and medical professionals since some states do not allow them to form as LLPs. The central difference between them is that PLLPs must provide proof of licensure for all members to operate lawfully.
When it comes to structuring your partnership, ensure that you choose an entity type best suited for your situation and business needs. Legal mistakes can become costly endeavors. Speak with a small business lawyer if you have questions or need advice when forming a partnership in your state.
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What’s Included In A Business Partnership Agreement
While every business partnership agreement is different, the primary elements are generally the same. However, it should speak to your specific partnership and operation since no two organizations are alike.
Below are common elements included in a business partnership agreement:
- Partnership’s name and location that you will provide on taxes and legal documents
- Required contributions made by each member, such as time, resources, and capital, and at what rate and frequency
- How partners will allocate profits and losses
- Decision-making powers and authorities delegated to each member
- Process for handling business partnership terminations, including the event of death
- Whether you will allow new partners or not and how you will onboard them
- How you will handle and limit civil dispute processes when seeking resolution or remedy from a partner’s wrongdoing
You and your business partners can address many of the details included in a business partnership agreement by drafting an operating agreement first. An operating agreement is generally used in conjunction with the Articles of Incorporation filing to receive Certificates of Incorporation. However, you can apply the identical principle to partnerships for greater understanding by partner members.
Why Business Partnership Agreements Are Important
A business partnership agreement may be one of the most critical documents that form your business from a legal and financial standpoint. When partners do not know what to anticipate, it can lead to partner disagreements in the future. Try to minimize the potential for disputes at all costs by taking the time to implement a business partnership agreement.
Here are four reasons why business partnership agreements are important:
- Establishes the percentage of ownership allocated to partners, including profitability
- Determines how much control by a percentage each partner holds, including decision-making power
- Expresses the assignment of liability held by individual partner members
- Leaves a set of instructions for remaining members regarding how to handle the deceased partner’s company stake
Theoretically, a business partnership agreement offers guidance to partners regarding their obligations and considerations for meeting them. However, many business owners may work through this process too quickly. The most practical approach is to take your time, if you can, and work with a contract lawyer to provide advice.
How To Write A Business Partnership Agreement
When it comes to writing a business partnership agreement, there is no specific length or way to write it. Since businesses evolve, you can write in provisions that help you address these needs for greater flexibility.
The steps for how to write a business partnership agreement include:
- Draft an initial general operating agreement
- Determine how you will treat the addition of new limited partners
- Determine how you will treat the addition of new full partners
- Create a continuity and succession plan in case a partner leaves
When drafting a business partnership agreement, there are several resources available online to assist you. However, these agreements may not be specific to your situation. For example, using an LLC operating agreement to address a partnership operating agreement’s needs may exclude necessary provisions and guidelines.
Working With A Lawyer To Prepare Your Business Partnership Agreement
Instead of using an online template, work with a small business lawyer to prepare your business partnership agreement. They can provide guidance and advice while ensuring that the contract is proper for your industry and jurisdiction and help you file the necessary legal documents to establish your partnership with the state.
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Meet some of our Business Partnership Agreement Lawyers
Atilla B.
Atilla Z. Baksay is a Colorado-based attorney practicing corporate and securities attorney. Atilla represents clients in the negotiation and drafting of transactional (e.g. master service, purchase and sale, license, IP, and SaaS agreements) and corporate (e.g. restricted stock transfers, stock options plans, convertible notes/SAFE/SAFT agreements, bylaws/operating agreements, loan agreements, personal guarantees, and security agreements) contracts, in-house documents (e.g. employment policies, separation agreements, employment/independent contractor/consultant agreements, NDAs, brokerage relationship policies, and office policy memoranda), and digital policies (e.g. terms of service, privacy policies, CCPA notices, and GDPR notices). Atilla also reviews, and issues legal opinions concerning, the security status of digital currencies and assets. Following law school, Atilla practiced international trade law at the Executive Office of the President, Office of the United States Trade Representative, where his practice spanned economic sanctions enacted against goods originating in the People’s Republic of China valued at $500 billion. Afterwards, Atilla joined a Colorado law firm practicing civil litigation, where the majority of his practice comprised of construction defect suits. Today, Atilla's practice spans all corporate matters for clients in Colorado and the District of Columbia.
Ramanathan C.
Dual Qualified New York Attorney & Enrolled NZ Barrister & Solicitor
Spencer R.
I am an experienced attorney working in New York specializing in executive compensation/severance arrangements, transactional real estate work, tax structuring and contracts.
Andrew F.
Andrew Friedman: Your Trusted Legal Advisor Andrew Friedman is a highly accomplished attorney based in Washington D.C. With extensive experience in strategy and policy consulting, financial regulatory operations, and business development, Andrew provides exceptional legal services to individuals and leading organizations. His expertise spans contract negotiation, policy formulation, compliance, and risk management. With a keen eye for detail and a strategic mindset, Andrew excels at finding effective solutions to complex legal issues. Trust in his professionalism and commitment to excellence for all your legal needs. Contact Andrew Friedman today for personalized legal counsel that delivers results.
July 5, 2023
zurick s.
Zurick T. Smith is the founding member of The Law Office of Zurick T. Smith, PLLC. His firm services DC residents with Trusts & Estate Planning, simple to complex employment and business matters as well as business formations.
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My solo attorney law office is focused heavily on Family Law, but I also do residential real estate, and prepare Wills & Trusts.
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Browse Lawyers NowContracts
Business Partnership Agreement
Tennessee
Zied kefi partnership
I wanna open restaurant with my friend and make legal partnership documents
Rebecca R.
You have the right idea to put the partnership in writing. Your attorney will be able to help you think through several issues: investment into the business, operating the business, the potential to add more partners or investors, and an exit strategy for each partner or both partners. The document to start with is a business partnership agreement that outlines the ground rules for your partnership based on the Tennessee law. It can be a very straightforward document, or more complex depending on your needs. For instance, you may also want to create a statement of partnership authority which designates which partners have the authority to enter into agreements on behalf of the partnership, or it may limit the authority of certain partners. This is the kind of business agreement I help small business owners with regularly, and I invite you to request a bid for my services on your project through ContractsCounsel.
Business
Business Partnership Agreement
North Carolina
Can I withdraw from a business partnership agreement?
I am currently in a business partnership agreement with a colleague, and I am considering withdrawing from the partnership. We have been in the agreement for over a year and our goals and objectives have changed. I am looking for legal advice on the steps I need to take to withdraw from the agreement, and the potential legal implications of doing so.
N'kia N.
Below is a general overview of how the process of a partner withdrawing from a partnership commonly plays out: The withdrawing partner gives written notice of withdrawal. The parties obtain business valuations to determine payout terms. The parties execute some type of withdrawal or buyout agreement that states rights, responsibilities, and restrictions (such as non-competition and non-disclosure/confidentiality), and other important terms of the deal. A partner who is considering withdrawing from the partnership should consider consulting with a knowledgeable attorney who can review the Partnership Agreement and the terms of a proposed withdrawal or buyout agreement, and either guide the partner through handling the process without representation or represent the partner through the withdrawal. Additionally, the partner might consider consulting with a tax professional regarding tax liabilities. [It is often beneficial for the partner to seek assistance from an independent attorney or tax professional, rather than one who represents the partnership or another partner.]
Music
Business Partnership Agreement
Pennsylvania
Hi I am in partnership with a person with a recording studio. I need a partnership agreement made up. Never did this before need help
Need a partnership agreement
Ryan W.
Hi I congratulate you on the decision to draft a partnership agreement. A partnership agreement is a document that governs the relationship between two partners. Without one, the relationship defaults to Pennsylvania law which may or may not be the arrangement contemplated between the parties. Having your own agreed upon partnership agreement will likely serve your business relationship better. I am happy to discuss a partnership agreement with you at your convenience.
Corporate
Business Partnership Agreement
Arizona
What to include in a business partnership agreement?
I want to learn what terms are typical in a partnership agreement. Background - I am wanting to create a partnership with an SEO agency (I provide digital ads/SEM services). I want to make sure we have the right terms around profit sharing and making sure they don't poach my clients without me getting a cut of the revenue. Any help is appreciated.
Michael S.
I recommend hiring an experienced corporate attorney to help negotiate and draft the agreement. You can't be given a list of 3 or 5 pointers and then expect to negotiate the agreement yourself. There are too many pitfalls. And you wouldn't expect someone to come to you and ask you how they can do for themselves what you do, right? It's more complicated than that, and there's a reason you're a professional.
Business
Business Partnership Agreement
Texas
Business partnership agreement for short projects?
I am looking to start a business partnership with another individual. We are both interested in working together on short-term projects, but we want to ensure that our partnership is legally binding and properly structured to protect both of our interests. We have discussed the details of our agreement, but I would like to have a lawyer review the agreement to ensure that it is legally sound.
Jimmy V.
In a partnership, each of you is liable for all debts of the partnership. Your personal assets are at risk if anything goes wrong. You should set up as a limited liability company. That way, only the LLC can be liable, and you will not be personally liable. To se up an LLC, you need a filing with the state, an Operating Agreement, and an Employer Identification Number from the IRS. The Operation Agreement is, in effect, a partnership agreement. I offer flat fee packages for these services. Thx. JV
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Amended and Restated Operating Agreement and Profits Interest Awards Agreement
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