What is a partnership agreement?

A partnership is where two or more persons come together to manage a business with the intention of making profits.

In a partnership, the partners equally share any profits or losses associated with the business. Each partner is also personally liable for any debts or obligations of the partnership itself – in other words, the partnership is not a separate legal entity.  

A partnership agreement basically outlines, in written form, the terms and conditions which govern the relationship of the partners pursuant to working together to manage a particular business.

This partnership is suitable for where there are three partners who come together to do business.

How to use the document

A partnership agreement can be entered into at any stage of a partnership. It can be entered before the partners begin doing business, in order to clearly outline all expectations and obligations amongst the partners. It can also be entered into after the partners have already started doing business together, so long as a partnership agreement had not previously been created. In this latter scenario, a partnership agreement will help clarify the expectations and obligations of the partners, that are part of the business.

When using this document, information which will need to be filled out includes:

• Jurisdiction in which the partnership is to be formed

• Name of the partnership

• The business of the partnership

• Property and assets of the Partnership

• Details of the CEO and Chairman

• Respective capital contributions of each party

• How many directors can be appointed by each partner

• % share ownership by each party

• Details concerning the operations of the partnership

All the partners to the agreement should sign the agreement. Each of the partners should receive a signed copy of the final partnership document. 

Frequently Asked Questions

What are the disadvantages of a partnership?

Some characteristics, which are commonly cited as disadvantages of partnerships include:

• Unlimited liability: The partners in a partnership are liable, without limit for the debts of the business housed in the partnership. This is unlike a company – where shareholders have limited liability – to the amount they have invested into the company.
• Joint and several liabilities: All the parties are responsible for the debts of the partnership – not just for the debts that they have caused.

Who needs a partnership agreement?

If two people are running or intending to run a business for-profit together, they should have a partnership agreement.

This is regardless of the relationship between the parties – whether they are family, colleagues or friends, they should all make sure to codify their arrangements in a Partnership Agreement.

Why is a partnership agreement important?

A partnership agreement explicitly outlines the terms and conditions in accordance with which partners are to conduct business through the partnership.

It helps avoid disagreements – should the partners find themselves in disagreement as to how the operations of a partnership should be conducted, they can simply refer to the partnership agreement.