7 Things You Should Include In Your Partnership Agreement

A business is of many types, the main type of business in respect of ownership is sole proprietorship and partnership. Partnership businesses are diverse, and it consists of two or more partners. The bond among partners consists of business relations and includes multiple responsibilities of the business. A partnership helps the business to flourish with the help of the skills, resources, and diverse knowledge of the partners.

In partnership, there are multiple owners of one business, and they are responsible for making multiple decisions, thus affecting different aspects of the business. People in partnership businesses need to have a partnership agreement. This helps in the smooth functioning of the business and prevents any future conflicts. In case of any future conflicts, the agreement helps in resolving that. You can create an agreement with the assistance of your Lawyer for business partnership.

Here are 7 Elements that you should include in your partnership agreement.

Elements to include in your partnership Agreement

An agreement is necessary as it is a rule book that dictates how you and your partners run your businesses. It plays a significant role because the agreement is legally binding on every partner. It is pertinent that all the terms mentioned below are present in an agreement for the smooth functioning of the business.

  • Ownership Percent- The percentage of ownership for each partner is one of the first things that our partnership agreement should contain. This condition will help define the share a partner has and the rights that we can avail. Knowing the percent of every partner in the business also helps to fight any upcoming legal battles or any claims.
  • Allocation of Profit and Loss- In an agreement, you should clarify the share of profit and loss that a partner has to bear. Generally, profit and loss are defined by the percentage of ownership a partner has. If you have a higher share of ownership, you will bear a high share of profit as well as loss. It depends on the partner’s understanding of how much they want to bear the loss and gain profit.
  • Contribution of partner- your Lawyer for a business partnership should clearly define the stake of every partner in the business. The clause should contain the contribution of partners to start the business, and the responsibilities of every person will bring to the table and not just money but also time, assets, efforts, customers, etc.
  • Decision Making- You and your partners cannot agree on everything, and when in business, you will have a conflict of interest under certain circumstances. In keeping in mind such situations, your agreement must contain clauses of the day-to-day management of your business along with long-term decision making. Agree on situations where you require unanimous voting and what require only one partner’s approval. This lets you set up a good structure for decision-making in your business and helps in the smooth functioning of the business, and you will set up a friction-free business and have a good relationship with your business partners.
  • Dispute Resolution- Dispute Resolution is one such clause that every agreement should have, and it is a defining clause as it helps the partners and the firm or business to take the course of action at the time of the dispute. The agreement should contain the full resolution process. Mediation and arbitration are some of the processes of dispute resolution. In this respect, the agreement should contain the method of resolution. Will it be arbitration or mediation?
  • Critical developments- in business, there is always something unexpected that happens, and that is what makes a business exciting and interesting. To make sure that critical developments do not hamper the business, your agreement should address certain situations and the solutions for them. Some of the situations are-
  1. Death of a Partner.
  2. Buy-Out and the evaluation process of the business.
  3. Procedure for Retirement of a Partner and Bringing in new partners.
  4. Situations where you can alter the partnership Agreement.
  • Dissolution- Before starting the business of the partnership, you should think about the situation where you might have to end the partnership. In such cases, what is the course of action that you take is a must to incorporate in the agreement. The procedure should sync with the laws of the state, and for this, you can take help from Business attorney Los Angeles. We will aid you in your dissolution process.


These were some of the things you should definitely include in your partnership agreement.