What is a Partnership Agreement?


Do You Need a Partnership Agreement?

Whether you are just starting your business venture, or your business has already been established, a partnership agreement may be right for you. Below are some helpful considerations when you are trying to figure out what a partnership agreement is, and whether you need one.  

What is a Partnership Agreement?  

In the state of California, a general partnership is established whenever two or more people agree to do business together for profit, even if there is no written agreement between them. Once the relationship has been established, the parties then have the option of formalizing the relationship with a written agreement. These partnerships can be delineated into three main types: general partnerships, limited partnerships, and limited liability partnerships. A general partnership means that each partner has unlimited personal liability for the conduct of the individual partners and the partnership as a whole. In limited partnerships and limited liability partnerships, the division of liability varies. This particular aspect is what separates partnerships from other business entities where individuals are able to divide themselves from the business in terms of liability.

What Does a Partnership Agreement Contain?

Partnership agreements can be tailored to the specific business, industry, or relationship. However, these agreements are the same in some basic ways. A well-written partnership agreement will outline and establish the following things:  

  • The nature of the business
  • The rights and responsibilities of each party  
  • The parties’ monetary contributions to the partnership  
  • How to admit or withdraw a partner
  • Voting rules and rights of each party
  • How to allocate the profits and losses of the venture  
  • How to resolve disputes  

The above list is not exhaustive, and we would recommend that any agreement be drafted to fit your business’ specific needs. These agreements protect the interests both of the parties and the business, and can be extremely helpful in the occasion of a dispute between the parties.  

When Do You Need a Partnership Agreement?  

Partnership agreements are unique in that they are not required to establish a business relationship. Meaning, you could benefit from a partnership agreement, even if you have never filed anything with the Secretary of State. Although these documents are not legally necessary, it is a good idea to have such a document so that you are prepared for any situation that should arise.  

The most logical time to obtain a partnership agreement is at the start of your business relationship, however, it is never too late to have one drafted for your existing business. Below are some points that may suggest it is time for you to have a partnership agreement drafted for your business:  

  • You are starting a business with your partner and you need to set up the roles and responsibilities for each other.  
  • You are in an existing partnership that has not been formalized with a written agreement and need to deal with changes in the relationship. For instance, withdrawal of a partner, a partner becomes incapacitated, or you are considering inviting a new party to the relationship
  • You want to prepare for any possible disputes down the line regarding your business

We understand that deciding if a partnership agreement would be beneficial to your business may be difficult. Here at Slate Law, we are here to help. We are experienced in drafting agreements for businesses, big and small. We want to work with you to provide a customized agreement that is right for your business. Contact our office to set up a flat rate consultation today.

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